Application of COVID 19 Public Health Orders to contracts clarified by High Court

9 March 2023

Yesterday the High Court published a notable decision on the interaction of COVID 19 Public Health Orders and the interpretation of contracts.

In Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd ATF the Parras Family Trust [2023] HCA 6, Laundy as vendor contracted with Dyco as purchaser for the sale of a freehold hotel property in Pyrmont known as the Quarryman Hotel, together with a hotel licence, for $11.25 million. Clause 50.1 of the contract for sale, which was entered into on 31 January 2020, provided that "from the date of the contract up until Completion, the Vendor must carry on the Business in the usual and ordinary course as regards its nature, scope and manner."

After the contract was entered into but before settlement, the COVID 19 Pandemic struck. Public Health Orders, which the Vendor complied with at all times, meant that the Quarryman was variously operating as a takeaway food business or subject to density restrictions depending on what was permitted at the time. On 25 March 2020 the Purchaser informed the Vendor that it would not complete the contract because the Vendor was not ready willing and able to complete due to, amongst other things, its purported breach of Cl 50.1.

After serving a notice to complete, the Vendor terminated the contract.

The issue to resolve for the High Court was whether the Vendor's operation of the Quarryman only to the extent permitted by Public Health Orders could be still be characterised as carrying on "business in the usual and ordinary course."

The Court, in allowing the appeal, held unanimously that the obligation imposed on the Vendor "was to carry on the Business in the manner it was being conducted at the time of contract to the extent that doing so was lawful. There was no obligation ... to carry on the Business unlawfully." The proper construction of the provision could not "extend to an obligation on the Vendor to act illegally" in order to comply with it.

Justin Gleeson SC and Luca Moretti appeared for the Vendors.

Link to judgment.