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Kale secured a long term lease to run a factory for his cabinet making business. In August 2015, Kale was successful in wining a tender which required him to make 70 cupboards for apartment units for a company called CitiPlus Pty Ltd. Thus, in order to complete the said tender, Kale employed 15 tradesmen. The said tender contract was to begin in January 2016 for a period of one year. However, in November 2015 Kale was informed that the State Road Authority I compulsorily acquiring the factory premises of Kale and he is required to vacate the same by March 2016. Thus, the issue in the said case is as follows:-
The Australian Contract Act governs all the contracts which are made and executed in Australia. Once a contract is made it binds the contracting party to comply with the obligations created under the said contract (Chen-Wishart, 2012). However, many a times, sometimes it becomes very difficult for the contracting parties to fulfill the duties assigned under a contract due to occurrence of certain supervening situations which are beyond the power and control of contracting parties (Kramer, 2010). Thus, a contract ending due to an unforeseeable and uncontrollable event beyond the power of the contracting parties is termed as frustration of a contract. In Australia, the rules of frustration of a contract are governed under the Frustrated Contracts Act 1988 (Furmston, Cheshire & Fifoot, 2012). In a popular Australian case law, Taylor v Caldwell, Caldwell contracted to allow Taylor to use his Hall premises for conducting four concerts for four days for $100 each (Hutchison, 2010). The contracted stated that the Hall should be fit for concert however before the first concert; the Hall was destroyed by fire (Poole, 2012). Thus, the judge in the said case stated that if the performance of a contract is dependent on existence of a particular thing or an individual and the said thing ceases to exist, the performance of the contract can be excused for impossibility to perform. Thus, section 6 of the Frustrated Contracts Act 1988 states that the contracting parties are discharged from the obligations they have under a contract in case the contract becomes impossible to perform (Anson ET AL., 2010).
The government of every country has the right to acquire any premises from an individual to serve better needs of the public and community at large (Niven & Bardsley, 2013). Thus, in South Australia, the Land Acquisition Act 1969 makes rules and regulations for government to acquire any land or premise of any individual in Australia by providing a notice under section 10 of the said Act stating their intention to do so (Figgis, 2014). However, section 22B of Division 2 of the Land Acquisition Act 1969 states that the individual is entitled to compensation in case the land acquisition under the Act has diverted or diminished the individual’s interest in the said land or the enjoyment of an individual’s interested in the said acquired land is adversely affected. this compensation can be monetary or in the form of transfer the title of another land to the individual whose land is acquire, however, it is subjective and depends on negotiations (Mercer, 2013).
In the present case, Kale secured a long term lease to run a factory however, the said land on which Kale’s cabinet making factory was operative was intended to be acquired by the State Road Authority. Thus, the contract which Kale had with CitiPlus Pty Ltd of supplying 70 cupboards would be frustrated as the factory was an important factory in the said contract and without the existence of the factory, the performance of the contract would be impossible. Thus, keeping in mind the judgement in the case Taylor v Caldwell, it is clear that the performance of the contract between Kale and CitiPlus Pty Ltd dependent on the factory and if the factory ceases to exist, the said contract stands frustrated. Therefore, according to section 6 of the Frustrated Contracts Act 1988 Kale and CitiPlus Pty Ltd are discharged of their legal obligations under the said contract.
Moreover, Kale had incurred many expenses in order to complete the contract with CitiPlus Pty Ltd which was frustrated due to land acquisition, thus Kale’s interest in the land taken by the State Road Authority as adversely affected along with diminishing his interest in the said land causing him to suffer many losses and expenses, thus, under section 22B of the Land Acquisition Act in South Australia, Kale can claim for compensation from the State Road Authority.
It is advisable for Kale to shift to a new premise, however the decision should not be made in haste and Kale can request the State Road Authority to provide him with another land as compensation.
The contract between Kale and CitiPlus Pty Ltd is frustrated. Kale can claim his losses and expenses from State Road Authority and it is advisable for Kale to shift his factory.
Adam, K. (2013). Auditors and Corporate Failure: An Analysis of the AWA and HIH failures in Australia and the Role of the Auditors.
Adam, K. (2013). The Law of Negligence: Company Auditor.
Allan, G. (2013). HIH Collapse: A Costly Catalyst for Reform, The. Deakin L. Rev., 11, 137.
Anson, W. R., Beatson, J., Burrows, A. S., & Cartwright, J. (2010). Anson's law of contract. Oxford University Press.
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