Contractual relationship may become "untethered" by foreseeable events
July 25, 2019
In Ayers Rock SkyShip Pty Ltd v Voyages Indigenous Tourism Australia Pty Ltd  NSWSC 828, the New South Wales Supreme Court considered the operation of a contractual clause requiring a party to provide services at specified times, in circumstances where compliance with the clause had become impossible.
The Plaintiff, Ayers Rock SkyShip Pty Ltd (ARS) entered into an Operator Agreement (Agreement) with the Defendant, Voyages Indigenous Tourism Australia Pty Ltd (Voyages) to operate a $2m tethered balloon for tourists to view the sunrise and sunset over Uluru and Kata Tjuta.
Relevantly, clause 4.1 of the Agreement provided that ARS had to "conduct the Business… during Normal Business Hours throughout the Term". Clause 16.1(e) of the Agreement gave Voyages the right to give notice to terminate the Agreement if a breach of a term of the Agreement was not remedied within fourteen days.
Six weeks after a soft opening of the facility the balloon was destroyed by high winds. Given the extensive damage to the balloon, it was impossible for ARS to resume services within fourteen days, and Voyages terminated the Agreement for breach of clause 4.1.
ARS argued that clause 4.1 applied only to ordinary circumstances and that an interruption to business caused by exceptional circumstances was outside the operation of the clause. Voyages argued that the clause was clear and unambiguous and provided that ARS would accept the full risk of interrupted operations.
Darke J held that viewed in the context of the whole agreement and in light of surrounding circumstances, the obligation to conduct the business still applied in exceptional circumstances. To hold otherwise would add a "significant gloss" on the words of the contract and cause uncertainty. His Honour found that:
ARS had breached clause 4.1;
ARS had failed to remedy its breach under clause 16.1(e); and
Voyages had a right to terminate the Agreement.
In reaching his decision, Darke J had regard to the following:
the parties had chosen not to make provision in the contract for frustration or for a force majeure event;
ARS could not get relief against forfeiture of its contractual rights on the equitable ground of "accident" as the concept of "accident" did not extend to events within the reasonable contemplation of the parties; and
even though it was known that Voyages wanted to relocate the balloon in any event, the exercise by Voyages of its right to terminate the Agreement was not for an improper purpose, did not operate harshly on ARS and was therefore legally effective.
The decision reinforces the need for parties to turn their minds to events that are reasonably foreseeable and to make provision for such events in the terms of the contract.
The full decision can be found here.