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Scanlan's New Neon Ltd v Tooheys Ltd

Scanlan's New Neon Ltd v Tooheys Ltd

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Case Copied 4 February 1943 83 min read

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67 CLR 169

SCANLAN'S NEW NEON LIMITED

TOOHEYS LIMITED

ON APPEAL FROM THE SUPREME COURT OF

NEW SOUTH WALES. CALDWELL

NEON ELECTRIC SIGNS LIMITED

COMPLAINANT,

ON APPEAL FROM THE SUPREME COURT OF Contract-FrustrationHire of neon advertising signs-Governmental Order pro-

hibiting illumination-Liability of hirers for rent.

During the currency of the hiring under certain contracts for the construction, installation and hiring for a period of neon advertising signs, Orders were made under the authority of the National Security Act 1939-1940 which said Orders operated to prohibit the illumination of the signs.

Held that, having regard to the nature and terms of the contracts and to the surrounding circumstances, the contracts were not frustrated and the hirers' liability to pay rent thereunder continued.

Per Latham C.J. and McTiernan J.: The test for determining when a con- tract is frustrated appearing in Consolidated Neon (Phillips System) Ltd. V. Tooheys Ltd., (1942) 42 S.R. (N.S.W.) 152, at p. 160 59 W.N. 103, at p. 108, is too widely stated.

67 CLR 170

Decision of the Supreme Court of New South Wales (Full Court): Scanlon's New Neon Ltd. v. Tooheys Ltd., (1942) 43 S.R. (N.S.W.) 2; 60 W.N. 4,

Decision of the Supreme Court of Victoria (Full Court): Neon Electric Signs Ltd v. Caldwell, (1943) V.L.R. 1, affirmed. Scanlan's New Neon Ltd. v. Tooheys Ltd.

APPEAL from the Supreme Court of New South Wales.

By writ of summons issued out of the Supreme Court of New South Wales, Scanlan's New Neon Ltd. sued Tooheys Ltd. to recover the sum of £173 8s. alleged to be the amount of rental due as at 30th April 1942 under certain neon sign lease agreements made between the plaintiff and the defendant respectively in respect of certain hotel and other premises situate in various parts of New South Wales.

The action was tried by Halse Rogers J. as a commercial cause without pleadings and without a jury. The following issues were ordered to be tried :-(a) Are the contracts still of full force and effect or has their operation been suspended or terminated owing to the circumstances which have arisen ? and (b) If the contracts are still operative what sums, if any, are due by the defendant to the plaintiff ?

A number of contracts were involved, each relating to a separate sign erected on business premises. The hire was alleged to have become due and payable in April 1942, at a time when the contracts were all current according to their express terms. The contracts were made respectively on 18th September 1937, and subsequent days down to 17th January 1941. The defendant resisted the claim on the ground that all the contracts were frustrated in the legal sense on 19th January 1942, in consequence of a governmental Order which made it illegal to light the signs after that date.

The governmental Order was made by the Premier of New South Wales pursuant to powers conferred upon him by the Commonwealth. It was made as a measure of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [1943] HCA 43
Decision Date: 4 February 1943

CaseChat Overview and Summary

In *Scanlan's New Neon Ltd v Tooheys Ltd*, the High Court of Australia considered appeals from the Supreme Courts of New South Wales and Victoria concerning the frustration of contracts for the hire of neon advertising signs. The dispute arose when government orders, made under the National Security Act 1939-1940, prohibited the illumination of these signs. The hirers (defendants) argued that these orders frustrated their contracts, thereby excusing them from paying the agreed rental fees.

The central legal issue before the High Court was whether the governmental prohibition on illuminating the neon signs constituted a frustration of the hire contracts. This required the court to determine if the supervening event had fundamentally altered the nature of the contractual obligations, rendering performance radically different from what was originally contemplated by the parties, or if it had deprived the hirers of an essential benefit to such an extent that the contracts should be deemed terminated.

The High Court, by majority, held that the contracts were not frustrated. The reasoning focused on the fact that the core obligations of both parties remained performable. The lessors had fulfilled their obligations to construct and install the signs, and the lessees remained obligated to pay rent. While the prohibition on illumination deprived the lessees of the primary benefit they expected – night-time advertising – the signs retained substantial value for daylight advertising. Furthermore, the contracts contained express terms, such as the obligation to pay rent regardless of use and the lessor's obligation to maintain the signs, which indicated that the parties had contemplated a range of circumstances, including potential non-use or reduced utility. The court found that the contracts did not become impossible to perform, nor was there a total failure of consideration, and therefore the doctrine of frustration did not apply.

Consequently, the High Court allowed the appeal from the Supreme Court of New South Wales, reversing the majority decision of that court, and dismissed the appeal from the Supreme Court of Victoria. The effect was that the hirers remained liable to pay the rental fees under their respective contracts.

Orders