Written by In Laundy Hotels v Dyco Hotels (2020) HCA 6, the Court drew a hard line on when, and whether, a party can claim that an unforeseen event “frustrated” a contract. During the COVID-19 pandemic, Laundy Hotels had agreed to sell a Sydney hotel business to Dyco. Just before completion, however, public health orders temporarily shut down operations. Dyco attempted to walk away, arguing the contract had been “frustrated” due to the government-mandated closure. The High Court unanimously disagreed. Chief Justice Kiefel, and Justices Gageler and Gleeson found that the government restrictions, while inconvenient, did not strike at the heart of the contractual purpose. The sale was of a business, not just a going concern. The risk of government intervention, the Court held, was foreseeable and did not destroy the fundamental basis of the agreement. Dyco’s attempt to rely on frustration failed because the contract, while impacted, remained performable.
This decision should sound a note of caution for anyone drafting or negotiating commercial contracts in uncertain times that force majeure and frustration are not get-out-of-jail-free cards, per se. The threshold is high. If your contract does not expressly contemplate certain contingencies, such as pandemics, trade embargoes, or regulatory intervention, you may find yourself forced to perform regardless. The High Court’s reasoning reinforces the commercial wisdom of well-drafted force majeure clauses, which remain the primary vehicle for managing unforeseen events. In an era of climate crises, cyberattacks, and geopolitical tension, the lesson from Laundy is blunt, in that one must anticipate and allocate risk effectively.