Can a special condition override the requirement to give 14 days' notice before a contract of sale of real estate is terminated?

In VS Property and Holding Pty Ltd v Zurzolo [2024] VSCA 199, the Victorian Court of Appeal had to determine the interpretation of a contract for the sale of real estate. The case involved a failure by the purchaser to settle on the original due date, and the entry by the parties into a deed which provided for an extension of the settlement date, with a specific term that failure to settle by the extended settlement date would result in the immediate termination of the contract. The purchaser failed to settle again on the extended due date, and the vendors argued that the contrct was termianted. The purchaser made an application for an order for specific performance of the contract, on the basis that the vendors had breached General Condition 27 by failing to provide a 14 day default notice to the purchaser. The trial judge dismissed the claim. The Court of Appeal had to determine specifically whether a 14-day notice was still required to terminate the contract and whether an order for specific performance could be made. The key points considered by the Court of Appeal were: - Clause 5 of the Settlement Deed: The parties agreed that if the purchaser (VS Property) failed to settle on the extended settlement date, the contract would be "immediately at an end" without the need for a 14-day notice. This clause was apparently intended to override the general condition (GC 27) of the contract, which required a 14-day default notice before exercising termination rights. - General Condition 27 (GC 27): This condition required that a 14-day notice be given to the defaulting party to remedy the default before any rights arising from the default could be exercised. The court held that Clause 5 of the Settlement Deed was not subject to GC27. The court found that Clause 5 provided for immediate termination upon default without the need for a 14-day notice, thus overriding GC27. The court reasoned that the specific terms of Clause 5 took precedence over the general terms of GC27. The court also dismissed the appeal which sought an order for specific performance of the contract. The court upheld that the contract was terminated automatically by the operation of Clause 5 upon the purchaser's failure to settle on the extended settlement date. In summary, the court concluded that a 14-day notice was not required to terminate the contract under the specific circumstances outlined in Clause 5 of the Settlement Deed, and an order for specific performance of the contract could not be made. As is often the case where purchasers fail to settle on the due date, and instead negotiate an extension to allow for a later settlement, the terms of the new arrangement need to be very clear. In this case, the purchaser negotiated an extension of time to complete the contract. In exchange, the vendors made it clear that there would be no further extensions and a failure to complete by the extended due date would result in the immediate termination of the contract. The Court of Appeal has confirmed that such an agreement can override the usual situation in Victoria where a defaulting party is allowed a 14 day period in which to remedy their default. WG Stark

Can a lease be frustrated at law, ending the parties' legal obligations?

The NSW Court of Appeal was recently called upon to deal with further fallout from the Covid-19 pandemic in Cao v ISPT Pty Ltd [2024] NSWCA 188. I am currently testing an AI platform. Here is an AI generated summary of the case (which took a few seconds): Background The appellants, Howard Cao and Yuan Zhao, were guarantors of a three-year commercial lease agreement (the Lease) for restaurant premises in the World Square Shopping Centre in Sydney. The tenant, Beijing Roast Duck Sydney Pty Ltd (the Tenant), operated the "Quanjude" restaurant at the premises. The Lease commenced on 1 October 2019, with an option to renew for another three years. The respondents, ISPT Pty Ltd and AWPF Management Pty Ltd, were the landlords and owners of the shopping centre. The Public Health Orders In response to the COVID-19 pandemic, the New South Wales government issued a series of public health orders under the Public Health Act 2010 (NSW), commencing on 23 March 2020. These orders imposed various restrictions on the operations of hospitality venues, including restaurants. The key phases were: a period when only takeaway service was permitted; a subsequent phase allowing limited dine-in capacity based on a 4 square metre rule per customer; and later, an increased capacity based on a 2 square metre rule. Principles of Frustration The doctrine of frustration applies when an unforeseen event renders the performance of a contract radically different from what was contemplated by the parties. However, it does not apply if the supervening event was a risk allocated to one party under the contract. Determining frustration involves evaluating the degree of impact on contractual performance, the length of disruption, and whether the parties still hold valuable rights under the contract. Frustration is not readily established, and the effects on a party's business, while relevant, are not determinative. Special Condition 4 The appellants argued that Special Condition 4 of the Lease, which required the Tenant to open the premises during specified trading hours, was rendered incapable of performance by the public health orders, leading to frustration. The Court rejected this argument, finding that the public health orders did not prevent takeaway operations, and that Special Condition 4 could not reasonably be construed as requiring illegal activity. Effect on the Tenant's Business The appellants contended that the public health orders transformed the Tenant's restaurant business into a radically different business, rendering it unviable for the remainder of the Lease term. However, the Court held that the risk of business interruption due to government action was allocated to the Tenant under the Lease. Additionally, the public health orders did not create a fundamental change in what was contracted for, as the restaurant could still operate, albeit with reduced capacity for a significant portion of the remaining term. The summary provided above appears accurate, although it does not provide any great detail about the doctrine of frustration and the legal principles that were considered by the NSW Court of Appeal. A further query posed to the AI platform generated the following response (again in seconds): The key legal principles discussed in the case, particularly regarding the doctrine of frustration of a contract, are summarised as follows: - Doctrine of Frustration: The doctrine applies if a supervening circumstance renders the context of performance of a contract so different from what the parties had assumed, making the contract fundamentally or radically different from what was contracted for. It does not apply if the supervening event is a risk for which one party had assumed responsibility under the contract. Frustration involves issues of degree and is not lightly made. The test looks at the effect of the supervening event on the performance of contractual obligations and the enjoyment of contractual rights. Frustration can arise even where contractual obligations could still largely be performed and may occur as a result of creeping or gradual change. - Allocation of Risk: In this case, the risk of disruption to the Tenant’s business by external events, including governmental action, was allocated to the Tenant under the Lease. Various provisions in the Lease contemplated the possibility of the business being interrupted or affected by external events. - Assessment of Frustration: Assessing frustration is a practical matter and should not be approached in a one-sided fashion. It requires considering both restrictive measures enacted in response to the pandemic and governmental measures introduced to aid businesses through the crisis. The appellants did not establish that the public health orders rendered the Tenant’s business unviable for the remainder of the Lease term or any significant part of it. Implications for Future Litigation: - Future litigation arising from the COVID-19 pandemic and state government responses will need to consider carefully the allocation of risk in contracts and whether the supervening events were risks assumed by one of the parties. - Courts will assess the practical impact of supervening events on the performance of contractual obligations and the enjoyment of contractual rights, taking into account both restrictive measures and governmental aid measures. - The high threshold for establishing frustration means that mere disruption or increased difficulty in performing contractual obligations may not be sufficient to claim frustration. These very brief summaries confirm that there is a very high bar to establishing that a contract (in this case a commercial restaurant lease) has been frustrated by either the Covid-19 pandemic itself or the various state government responses to the pandemic in imposing various restrictions on the population at large, and restricting the numbers of people who could attend restaurants to dine out at various times as the pandemic raged. WG Stark