On 31 January 2020, the Owner of The Quarryman’s Hotel contracted to sell the hotel and carry on the business in the ‘usual and ordinary course’ until completion on 31 March 2020. However, on 23 March last year, the Public Health (COVID-19 Places of Social Gathering) Order 2020 mandated the hotel to restrict trading to takeaway sales only. The purchaser did not want to proceed because they were concerned that the closure of the hotel would have serious consequences upon their ability to obtain revenue from the hotel, especially as there was uncertainty as to how long the shutdown would last or how the order would subsequently affect the hotel industry. The purchaser claimed that the contract had been frustrated by the Public Health Order. 

The Court held that frustration must depend upon the unexpected effect that the public health orders had upon the actual performance of the vendor’s obligations to carry on the hotel business until completion. 

It found that performance was significantly affected by the Order in March 2020 but the adverse effect of the public health orders and restrictions upon financial performance of the hotel was ‘a risk of the type the purchasers were prepared to take’ given the purchaser had industry experience. There was no frustration because the situation did not render performance of the contract ‘radically different’ to that what the parties had contacted for. 

As the purchaser had terminated the contract, they were ordered to pay damages in the amount of $900 000. 

This case is a reminder of the difficulty of proving that a contract was frustrated and resultingly, the importance of including specific terms relating to events such as a pandemic as a situation enabling termination of a contract. To review the full judgement of this case, see here.

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