High Court says hotel sale not frustrated by pandemic
In mid-March this year, the High Court unanimously overturned a decision of the New South Wales (NSW) Court of Appeal about the sale of Quarryman’s Hotel in Sydney and the issue of frustration in the context of the COVID-19 pandemic. The High Court found the hotel’s compliance with public gathering restrictions did not give the buyer a right to repudiate the purchase agreement.
Background
The contract required the seller to carry on the business in the ‘usual and ordinary course’ until the date of settlement. However, shortly after entering the contract, the Australian Government issued public health orders restricting the hotel to takeaway sales and delivery due to the COVID-19 pandemic. The business experienced a decline in value of $1 million, and the buyer sought to be released from the contract on the basis it had been frustrated.
The NSW Supreme Court initially said the contract had not been frustrated because the seller had not warranted the future income of the business. However, the NSW Court of Appeal went on to find the public health orders meant the seller was incapable of complying with its obligation to carry on the business to the standard required so the buyer was justified in refusing to settle and demand recovery of its deposit.
High Court appeal
The High Court found unanimously in the seller’s favour and said the seller was ‘ready, willing and able to complete’ the sale and had kept trading despite the pandemic restrictions.
The Court found the seller’s obligation was to ‘carry on the business in the usual and ordinary course as regards its nature, scope and manner’ incorporated an inherent requirement to do so in accordance with law. This included not only the hotel’s liquor and gaming licences but also compliance with public health orders.
The Court also said the seller had not guaranteed the hotel’s future value, nor had it accepted the risk the buyer could withdraw from the purchase if the value was reduced.
Conclusion
The decision provides important clarity on the effectiveness of the ‘business as usual’ type clause in allocating the risk of legislative change, not only in relation to COVID-19 pandemic issues but generally.
Contact
Jordon Lee
Lawyer
Geoff Benson
Lawyer
Harvey Duckett
Lawyer
Luke Denham
Lawyer
Jemima Whiteman
Lawyer
Bradley White
Lawyer
Sarah Khan
Lawyer
Marie Mitilineos
Lawyer
Gloria Tam
Lawyer
Sheldon Fu
Lawyer
Anna Cao
Lawyer
Claire Bourke
Lawyer
Chloe Taylor
Lawyer
Silvana Brcina
Lawyer
Daphne Schilizzi
Lawyer
Andrew Banks
Lawyer
Isabella Urso
Lawyer
Jessica Liu
Lawyer
Amelia Spratt
Lawyer
Luke Raams
Lawyer
Emma McDonald
Lawyer
Carl Ayers
Lawyer
Gus Hu
Lawyer
Rebecca Dodd
Lawyer
Gretel Burns
Lawyer
Rachel Bonic
Lawyer
Samantha Frost
Lawyer
Emma Bechaz
Lawyer
Matt Dolan
Lawyer
Luke Hefferan
Lawyer
Related industries
Investment Funds You might be also interested in...
Insurance | 17 Mar 2023
Subpar result for sub-subcontractor
The New South Wales Supreme Court has recently considered the construction of a general liability policy of insurance, as to whether a sub-subcontractor was an ‘insured’ or ‘agent’ as defined in the policy to enliven coverage. We examine.
Uncategorised | 17 Mar 2023
Systems and processes – adequate not perfect
ASIC brought a proceeding against the Commonwealth Bank of Australia (CBA), alleging CBA violated the ASIC Act and Corporations Act by erroneously charging monthly account fees to customers in circumstances where the fee should have been waived. ASIC asserted CBA did not have adequate systems and processes. The court dismissed the proceeding and rejected ASIC’s argument that systems and processes need to have a zero percent mistake or failure rate to be adequate. Partner Selina Nutley explains the key points and what you need to know now.