Contract Law: Negligent Misstatement and Frustration of Contract

This article discusses the principles of negligent misstatement and frustration of contract in the context of two scenarios. The first scenario involves a developer and a council clerk, while the second scenario involves a contractor and the state government. The article examines relevant laws and rules, such as the principle of duty of care, legal advice, and the principle of reasonable foreseeability. The article also applies landmark cases, such as Shaddock v Parramatta City Council and Codelfa v State Rail Authority (NSW), to the scenarios. The conclusion highlights the importance of mutual mistake and the doctrine of frustration in contract law.

Running head: CONTRACT LAW
Contract law
Name of the Student
Name of the university
Author Note

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Part A
ISSUE
Alexia, who is a developer, owns a large tract of land between Ipswich and Toowomba.
She wants to develop a township by the name Torrensvillle and therefore submits a development
application to the local council. Alexia is concerned that her land should not be used for the
freeway which shall pass her land and clearly mentions that in her development application. The
council clerk advices that the freeway will not be resumed. Alexia takes his words seriously and
believes him. Later, she gets her development application approved from the council but the
verbal statement of the clerk finds no mention in the signed agreement. The written statement has
no mention of the resumption. After the work progresses and building commences, the inspector
comes to the site and says that there will be a resumption of the 24 blocks of land bordering on
the road. By the resumption, Alexia is afraid she will incur huge loss and as a result contemplates
suing the council.
RELEVANT LAW/RULE
The parties are governed by tort law. The parties are governed by tort law, more
specifically negligent misstatement arising out of the misinformed advice of the clerk. As has
been held in the Shaddock v Parramatta case, there lies a case of negligent misstatement, which
is a special kind of tort (Roberts 2017). Byrne & Co. Ltd. V Heller & Partners Ltd and Mutual
Life and Citizens’ Assurance Co. Ltd. V Evatt, it was decided that there lies a case of liability in
case of any financial loss that occurs due to any misstatement.
Tort is a civil wrong committed by one party on the other resulting as a result of an omission or
failure to perform a promise (Kysar 2017). Tort is a wrongful act giving rise to a remedy to claim

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damages. Misstatement is a false statement which has been made without taking proper
consideration of facts. A misstatement is a negligent statement not made carefully and which has
the capability to mislead anyone. Misstatement can be in the nature of fraudulent misstatement
and non fraudulent misstatement. Negligent misstatement is given by a party who seemingly has
more knowledge or expertise on a party to a party who doesn’t possess any knowledge in that
regard (Barker 2015). A person in legal terms has a duty of care to the other party because based
on his words; the other party takes an action only to face loss in the future.
Legal duty of care: Any person giving any advice to another party owes a duty of care to impart
any information which any prudent man would give (Goldberg, Sebok and Zipursky 2016).
Legal advice is owed to the plaintiff and he has to prove that based on someone’s knowledge and
skill, any decision was taken which resulted in the loss. Negligent misstatement is only
actionable in court if it can be proved that there has been a breach of the legal duty of care which
gave rise to damage (Best, Barnes and Kahn-Fogel 2018).
Damage: The person committing the tort is called the tortfeasor. The tortfeasor has to have a
legal duty of care and by abiding by those advices; the plaintiff has to show that he has suffered
economic loss. Based on the person’s advice, if the plaintiff can prove that he entered into a
contract that made him liable or suffer loss, there can be a case of negligent misstatement
(Ferrara et al. 2016).
Reasonable foreseeability: The principle of reasonable foreseeability helps infixing liability. It
needs to be proved that the wrongdoer had an intention to cause harm and had made the
statements negligently. The alleged wrongdoer has to prove that he did not foresee the alleged

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harm (McDonald 2015). The plaintiff has to show that he took the decision based on the
wrongdoer’s statements and did not have any knowledge of the loss he could have incurred.
APPLICATION
Shaddock v Parramatta City Council (1980-81) 150 CLR 225 is a landmark Australian
court judgment which discusses the liability in case of negligent misstatement. The landmark
judgment deals with duty of care and negligent misstatement and lays the principle of liability
(Thyagarajan 2014). In simple words, the judgment says that whenever a person is trusted with
some information or advice, he should give the advice to the best of his knowledge. Whenever
the speaker gives any information knowing that the other party will act on act, he is duty bound
to give information to the best if his skill and shall not give any false or misleading information.
Byrne & Co. Ltd. V Heller & Partners Ltd. held that any financial loss arising out of any
misstatement makes the informer liable for the loss even though there was no contractual relation
between them (Campbell 2016).
Applying the above mentioned principle as laid down by the landmark Australian case, it
can be said that the clerk of the council owed a duty of care and gave Alexia information
knowing very well that it will be taken into consideration by Alexia. Alexis trusted the clerk
because of the position he holds and believed that due to the position he holds in the council’s
office, he will have the knowledge and therefore trusted him. Alexia trusted the clerk with the
information and therefore carried on with the construction. Based on the advice of the clerk,
Alexia commenced construction and did not anticipate that there will be a resumption of 24

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blocks which the clerk had assured Alexia wouldn’t happen. As a result of the resumption of the
blocks, Alexia will suffer huge loss and is due to the negligent misstatement of the clerk.
CONCLUSION
The clerk has given wrong information to Alexia assuring her that there will no
resumption of the land for the freeway and based on the verbal assurance, Alexia commences the
construction of the land. The inspector tells her that there will be a resumption of 24 blocks of
land. Alexia is afraid she will lose a huge amount of money and will incur loss from the block of
land. The principle of negligent misstatement can be used in the present case as the clerk has
given out uninformed and deceiving statements thereby inducing Alexia to commence
construction and believe in his words. Even though there lies no contractual or fiduciary relation
between Alexia and the clerk, Alexia can file a case of negligent misstatement. The Council has
performed his obligations and is not liable for anything said by the clerk. Therefore, Alexia
cannot bring a case against the council but can sue the clerk for negligent misstatement.
Part B
Issue
A contract has been entered into between RoadRUs (the contractor) and the State
Government regarding the completion of a work. Alexia had already discussed with the
Government regarding the amount of time that will be taken to complete. Though initially the
terms of the contract were clear regarding the stipulated time that will be required but later the
contract was attacked by injunction of the Court asking the construction to stop from 7 am to 9

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pm. Initially, the terms of the contract fixed the time and the schedule of the work that is, the
workers will work 24 hours in 3 shifts. After the injunction from the court, the contractors came
up with a condition that the work can only be completed when 4 months of extension is allowed
and that the terms of the agreement should be negotiated which was rejected by the State
Government. The major issue in the present situation is whether the doctrine of frustration as
laid down by Lord Simon can be applied in the case and whether there was a mutual mistake that
could not have been anticipated by the parties. The issue majorly concerns itself with the
question whether there has been a major fundamental difference in the conditions after the
injunction has been passed by the court.
Relevant Rule/Law
Codelfa v State Rail Authority (NSW) deals specifically with frustration of contract and implied
mistake in relation to the terms of the contract that was mutually agreed between the parties.
Lord Radcliffe in Davis Contractors Ltd. v. Fareham Urban District Council has also spoken
about frustration of contract in the mentioned landmark judgment. Bell (1932) AC at, pp 225-226
by Lord Atkin has laid down in details the conditions when doctrine of frustration can be applied.
Along with Lord Atkin, Mason J. Has also concurred on the same decision talking at length
about when to apply doctrine of frustration (Fried 2015). The Codelfa Case acts as a strong
precedence which can be applied to the given case. The arbitrators had made some pertinent
observations in paragraphs of 14,15,16.18 and 19 which make the relation between the parties
very clear. Special emphasis has to be given to pages 361-363 of the judgment and paragraph 14
of the judgment by the esteemed and learned judges. Mason J. Gives a very general rule of
frustration which might be applied in cases of frustration and how extrinsic factors can be
considered while understanding the implications of the contract whereas Lord Atking gives a

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more specific judgement (Stone and Devenney 2017). Doctrine of frustration has to be
understood along with the concept of mutual mistake, that is, what the understanding of the terms
of the contract and whether the parties had factored in injunction or whether they were oblivious
to the terms of the contract and what implications could have arisen.
Application
Codelfa v State Rail Authority (NSW) is an important precedent in the case concerning frustration
of contract (Harris 2015). As has been mentioned earlier, frustration of contract occurs when due
to the unforeasibility of any act; a contract becomes difficult to be fulfilled. Frustration of
contract happens without the fault of either party but the situations are such that the contract
becomes difficult to be performed. The reason behind applying the principles as laid down in the
Codelfa Case is because the facts of both the cases are similar and bears an important relevance
to the present situation between RoadRUs and the State Government. The relation between
RoadRus and the State Government are similar, that is, both are bound by the principle of
frustration of contract. The conditions in this case are difficult to be honoured and therefore have
become frustrated. The contents of the contract in the Codelfa case is similar to the present case
as the agreement of the case was regarding the contract between the parties stipulating specified
day and shift which later attracted the injunction of court. The arbitrators in the case after
analysing the conditions came to the findings that the parties had mutual mistake of facts
regarding injunction, that is, they were not aware that the agreement could attract an injunction
of court (Foreman 2015). Similarly, in the present case, the parties had agreed on the shift and
timing to complete the construction. The nature of the work was noisy which had the potential to
harm the neighbours. When the contract was signed there were no residents in the area but later
after the construction was on its way, the residents object to the noise and filed a case as a result

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of which the court ordered an injunction (Eldridge 2015). The injunction which was later filed by
the court was not a remote consideration when the contract was signed between the parties. Both
the parties are not at fault as they could not have guessed that their contract would attract
injunction and that residents would come while the work was in the middle of completion.
Lord Atkin held that the situations in the case were radically different after the injunction
was granted and when the parties had signed the agreement. As held by Lord Atkin in P363 that
the conditions were fundamentally different because after a major change in the shift and
reduction of time span allowed, the conditions were not similar for the contractors to continue
the work in the same situation (Botero 2014). The same can be said in the present case that after
the major reduction in 2 shifts from 3 and change of time, that is stoppage of work from 9 am to
7 pm, it was not possible to finish the work in the stipulated time as there has been a drastic
change in the situation. If a comparative analysis is done between the situation that existed
before the contract was signed and after the injunction was passed, there seems to sea change in
the terms of the contract. After the reduction in work shift and change in time, it can be clearly
said that the conditions are not the same. Instances when radical difference in conditions appear,
the parties are not bound to honour the contract in the same light.
The contract envisaged that the work will go on without any interference by the residents and
that injunction will not apply to the court. Both the parties were unaware of a situation arising
out of an injunction. Lord Atkin in P361 held that the parties could not guess that there work will
be attacked by injunction, hence there has been a mutual mistake in the contract. There has been
a change in the surrounding circumstance as from when the parties had entered into the contract.
Lord Simon of Glaisdale said in National Carriers Ltd. v. Panalpina that whenever the

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surrounding circumstances change which was not anticipated, the parties are discharged from
liability (Vos 2017).
CONCLUSION
Parties are bound by the clause of mutual mistake because they could not have foreseen
that the terms of the contract would attack injunction. The conditions have totally altered and the
parties

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