Dyco Hotels Pty Ltd v Laundy Hotels (Quarry) Pty Ltd

The appeal before the Court of Appeal of New South Wales concerned a dispute between Dyco Hotels Pty Ltd (the plaintiffs) and Laundy Hotels (Quarry) Pty Ltd (the defendant) regarding a contract for the sale of a hotel and its associated business. The central issue revolved around the interpretation of a contractual clause requiring the business to be conducted in its "usual and ordinary course" during the period between contract signing and completion, particularly in light of the COVID-19 pandemic and subsequent public health restrictions.

The court was required to determine several legal issues. Firstly, it had to interpret the meaning of "usual and ordinary course" within clause 50.1 of the contract, specifically whether it referred to the general practices of hotel businesses or the particular practices of the business being sold, and whether it mandated an identical mode of operation to that pre-contract. Secondly, the court considered whether the risk of significant trading restrictions imposed by public health orders, arising from the COVID-19 pandemic, passed to the purchaser on completion or was a risk borne by the vendor. Thirdly, the court examined the applicability of clause 63.7, concerning severance, to a situation of temporary supervening illegality and whether the public health order rendered clause 50.1 unenforceable or if it formed an indivisible part of the contract for the sale of a going concern. Finally, the court considered whether the defendant's actions constituted a repudiation of the contract or if the contract was frustrated by supervening illegality.

The Court of Appeal found that the phrase "usual and ordinary course" referred to the particular business being sold, not hotel businesses generally. It reasoned that the purpose of the clause was to ensure the business was maintained as a going concern, and that the COVID-19 restrictions, while impacting the business, did not render compliance with clause 50.1 illegal in a way that frustrated the contract or made it impossible to perform. The court held that the defendant's conduct in issuing a notice of termination, based on its interpretation of the impact of the pandemic on the contract, amounted to a repudiation of the contract. The court concluded that the defendant was not entitled to terminate the contract and that the plaintiffs had validly accepted the repudiation.

Consequently, the Court of Appeal allowed the appeal, set aside the orders of the primary judge, and declared that the defendant had repudiated the contract, which repudiation was accepted by the plaintiffs. The court further declared that the plaintiffs were entitled to the return of their deposit, ordered the dismissal of the defendant's cross-claim, and ordered the defendant to pay the plaintiffs' costs of the proceedings and the appeal.