Ayers Rock SkyShip Pty Ltd (ARS) provided tourists with rides in the gondola of a tethered helium balloon (the Sky Ship) at the Ayers Rock Resort. Tourists enjoyed spectacular views of Uluru at sunrise and sunset from a height of 150 metres from the Sky Ship.

On 8 October 2018, just 7 weeks after rides began, disaster struck. High cross-winds destroyed the blimp shaped helium balloon while it was on its mooring platform. There was no ‘spare balloon’ – no Plan B to provide a back-up. The Sky Ship attraction would need to cease operation for an estimated 9 months until a replacement was available. 

 Voyages Indigenous Tourism Australia Pty Ltd (Voyages), the owner of the Resort was not prepared to wait, and terminated the Operator Agreement, the Site Lease and the Tour Information Centre Lease. ARS disputed the terminations by arguing that the notices of termination were not effective and that the court should give relief against forfeiture.

The decision of Ayers Rock SkyShip Pty Ltd v Voyages Indigenous Tourism Australia Pty Ltd [2019] NSWSC 828 (4 July 2019) (Darke J) illustrates the importance of including a legal Plan B – a ‘damage and destruction clause’ in the operator agreement.

The Operator Agreement and the Leases

The Operator Agreement and Leases were signed in September 2015 after 4 years of discussions which included detailed proposals for the operation of the tourist attraction.

The key clauses in the Operator Agreement were:

Term: An initial term of 5 years commencing on 1 October 2016, with a 5 year option to renew

Preconditions: The Civil Aviation Authority issuing an Air Operators Certificate and being satisfied with the premises leased under the Site Lease

Business: Provision by the Operator of rides in the open-air gondola of a tethered balloon (balloon adventure experience) for the benefit of guests, visitors and residents of the Resort

Conduct of the Business: The Operator must conduct the Business in accordance with the terms of this Agreement during Normal Business Hours throughout the Term (clause 4.1)

Normal Business Hours: Ayers Rock Resort operates daily every day of the year with a large emphasis on sunrise and sunset viewing and day time tours of both Uluru and Kata Tjuta.

Termination: Voyages may terminate this Agreement immediately by written notice to the Operator if: .. (e) the Operator breaches any of the other terms of this Agreement .. which is not remedied within 14 days after being given written notice of the breach by Voyages requiring that the breach be remedied (clause 16.1)

The Leases were for the same Term. The Site Lease was at a rent of $36,000 plus GST per annum, the Tour Information Centre Lease was at a rent of $14,516 plus GST per annum. They had similar default and termination clauses, and a clause that provided that the Leases would terminate immediately on the date that the Operator Agreement was terminated.

The Termination

After the Sky Ship was destroyed on 8 October 2018, Voyages stated its desire to terminate the Agreement and the Leases on the basis that the Business had ceased. Voyages rejected an offer made by ARS to surrender the Leases and the Agreement on certain terms. Discussions were had to replace the tethered balloon with a viewing tower - a Sky Bar, but Voyages was not interested.

On 24 December 2018, Voyages sent a notice of breach of the Agreement (under cl 16.1(e)) giving ARS 14 days to conduct the Business during Normal Business Hours (cl 4.1), failing which the Agreement would be terminated. Similar notices were sent under the Leases.

On 1 February 2019, Voyages served Notices of Termination because of non-compliance with the notices.

The Determination

On the question of breach, the Court stated:

ARS will be in breach of cl 4.1 if, during the relevant period, it can be seen objectively to be not conducting the Business in accordance with the terms of the agreement during Normal Business Hours. [p 76]

The Court rejected the argument by ARS that cl 4.1 should not be construed as an obligation to maintain uninterrupted provision of rides in the Sky Ship regardless of exceptional circumstances:

In circumstances where the services to be provided in the conduct of the Business were to be rendered by means of a single vehicle, namely, the Sky Ship, the parties should be taken to have contemplated that continued provision of the services was susceptible to events causing the Sky Ship to become inoperable. [p 78]

The Court qualified this comment by stating that short interruptions, caused by winds or storms, would not amount to a failure to conduct the Business.

On the question of termination, the Court stated that in addition to clause 16.1(e):

a right to terminate at general law did arise … the breach of the provision was sufficiently serious to justify termination … The breach of cl 4.1, which continued from 8 October 2018 to 1 February 2019, was not one readily able to be rectified. [p 97]

It follows … that the failure of ARS to remedy the breach of cl 4.1, as required by the notice of breach, gave rise to a right in Voyages to terminate the Operator Agreement. [p 98]

The Court then considered the principle of relief against forfeiture: whether it would be unconscientious for Voyages to insist on its strict legal right to terminate the Operator Agreement in that ARS will lose valuable contractual right by the termination.

ARS said that Voyages acted with improper purpose – it took advantage of the ‘accident’ to terminate because it was dissatisfied about the location of the Sky Ship, in that it interfered with views of Uluru from the Mala dining site. Justice Darke rejected this suggestion:

In my view, it was not against conscience for Voyages to exercise its right to terminate in its perceived commercial interests. [p 119]

Justice Darke found the event was foreseeable and not a force majeure event (frustration):

Here, the possibility that some event may occur to render the Sky Ship inoperable was a matter within the reasonable contemplation of the parties to the Operator Agreement (see also [78] above). An apparatus of that nature, designed to be airborne at times, and to be kept at all times in the open and thus exposed to the elements, can reasonably be expected to be subject to a range of possible perils. Insurance is commonly effected to cater for the risk of such events occurring. Insurance was in fact placed in this case. USH effected insurance in respect of the Sky Ship, and received a payment from the insurer in January 2019 of about $1.98 million.

It would have been open to ARS to seek the inclusion of provisions in the Operator Agreement to protect itself against the consequences of events of that nature. I therefore do not think that the event that caused the damage to the Sky Ship on 8 October 2018 was an “accident” in the sense required to constitute a ground for relief against forfeiture. [p 112]

The Court held that the Operator Agreement and Leases were validly terminated and ordered ARS to pay Voyages legal costs of the proceedings.

Conclusion – A legal Plan B

The Sky Ship was destroyed by a foreseeable event. Therefore, the parties could have included a clause in the Operator Agreement to apply in the event the Sky Ship was damaged or destroyed.

The parties did not include such a clause, and as result, cl 16.1(e) was the only clause applicable to deal with the interruption, giving a totally inadequate period of 14 days for ARS to resume operating the Sky Ship.

‘Damage and destruction clauses’ are standard in premises leases. They provide that in the event of damage or destruction to the premises then either party may terminate the lease if the premises are not reinstated by the landlord within an agreed period.

In this case, the parties could have included a damage and destruction clause in the Operator Agreement by which the operator had an agreed period of 9 to 12 months, within which to recommence the business. Alternatively, the clause could permit the operator to surrender the agreement and the leases without penalty.

A legal Plan B along these lines could have avoided this dispute.