Have you ever agreed to buy something and changed your mind? Or worse, contracted to purchase a property and had the market change?
In addition to reaping havoc on our personal lives in 2020, COVID-19 also made a number of good deals look bad. One such example was Dyco Hotels Pty Ltd v Laundy Hotels (Quarry) Pty Ltd which related to freehold purchase of The Quarryman’s Hotel in Pyrmont, Sydney (together with the associated gaming/hotel licences). The contract in question was dated 31 January 2020, before the COVID-19 restrictions came into force in Australia (“the Contract”).
business as usual defined
As we can now imagine, through the magic of hindsight, performance of the contract terms to “carry on the business” became difficult when various public orders under the Public Health Act 2010 (NSW) were made in response to the outbreak of COVID-19. As hospitality venues were forced to close their doors and provide only a take-away food service, carrying on one’s business in the “usual and ordinary course” became quite the challenge.
The buyer argued that the Contract was frustrated due to the public health orders and, as you would expect, the Seller disagreed. The Court has now ruled in favour of the Seller saying the “usual and ordinary course of business” was interpreted to mean usual and ordinary in so far as it remained possible to do so in accordance with the law.
take-away points (no pun intended)
- Don’t be fooled into thinking that an event such as the outbreak of a pandemic would automatically absolve you from having to carry out your obligations under a contract.
- At least during COVID-19, sellers should consider inserting provisions into a sale contract to make it clear that any obligations they are required to perform prior to settlement, which relate to the conduct of the business, can be dispensed with if reasonably required in order to comply with laws/emergencies.
- Buyers, on the other hand, should consider negotiating provisions which perhaps allows them to terminate and walk-away where the value of the business being carried on has been materially adversely impacted by events occurring prior to settlement.
- This case reiterated the exceptionally high onus of proof required to establish that a contract had been frustrated.