This case arose from the Cregans' sale of their hotel business to Aysun Pty Ltd (Aysun). Three months after the sale, police began enforcing an existing limit on patrons in the hotel's nightclub. Aysun then brought proceedings claiming for the trading losses and loss of profits that ensued, as well as expenses incurred in refurbishing the nightclub and restoring its patronage.
The issue was whether the Cregans were liable for these losses given their warranty that the business had complied with regulatory requirements at the time of sale, despite knowing that the patronage limits were not being complied with.
In finding that the Cregans were not liable for these losses, the Court firstly considered that the promise was only concerned with past facts (and not the future). In other words, the Cregans had promised that the hotel business practices in place at the time of the sale were not in breach of regulatory requirements, but this did not extend to a promise that continuing those practices (ie continuing to breach the patronage limits) would not be in breach of regulatory requirements.
The Court held that even if there was a breach of the contract, no causal connection could be established between these breaches and the losses to Aysun when the patronage limits were subsequently enforced.
This case demonstrates that a buyer needs to consider the scope of the warranties which are obtained from the vendor very carefully, so the buyer can make a claim if it cannot operate the business after completion in the same way that it was operated before completion.