Dear Colleagues;

While contract law is not my area, I thought others might be interested in the decision of the High Court of Australia today in Laundy Hotels (Quarry) Pty Limited v Dyco Hotels Pty Limited [2023] HCA 6 (8 March 2023) http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA//2023/6.html . On the sale of a hotel business and associated liquor license, a clause of the contract required the Vendor, before completion of the sale, to “carry on the Business in the usual and ordinary course as regards its nature, scope and manner”. After the contract was entered into, Covid-19 struck and NSW Public Health Orders restricted what could be earned by the hotel for some months. The purchaser (early on in when the restrictions were most severe) then tried to resist a notice to complete.

The trial judge ruled in favour of the vendor, the Court of Appeal by majority in favour of the purchaser. The High Court in a unanimous 5-member decision (Kiefel CJ, Gageler, Gordon, Gleeson and Jagot JJ) overturned the NSWCA and ruled in favour of the vendor.

I was tempted to see this is as an example of the doctrine of frustration, but actually it isn’t- the trial judge and all the other judges up the line said this was not an example of the contract being frustrated by supervening events. Instead, the HCA says this was simply a matter of interpreting the relevant clause (cl 50.1, quoted above). While the clause did not explicitly say so, what it meant was that the vendor’s obligation was to keep the business operating lawfully, not unlawfully; and once the law had imposed restrictions, they kept trading within those restrictions. Hence the vendor had complied and the purchaser was then obliged to complete when all other conditions were met.

I found this comment interesting:

“[36] The requirement for the carrying on of the Business to be lawful did not need to be expressly stated in cl 50.1. Nor does it need to be implied. It is inherent within the words "the usual and ordinary course as regards its nature, scope and manner" construed in the context of the whole contract.”

The suggestion seems to be that we have three categories of contractual terms: express; implied; or “inherent”. I would usually have thought an “inherent” term could be described as one “implied” if not expressly stated- but I guess the difference is that “inherent” means “not stated but inferred from the contract as a whole”, whereas “implied” may be “read in for other reasons”? But I am conscious of dipping my toe into complex debates so will leave that there!

Regards

Neil