Scanlan's New Neon Ltd v Tooheys Ltd

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.