In a recent decision, the High Court has considered the obligations of a seller of a business to trade in the ordinary course. The court held that the seller was ready willing and able to complete the $11 million transaction, despite not operating its hotel business due to NSW government public health restrictions due to COVID.
The contract for sale contained a clause required the seller to continue to trade “in the usual and ordinary course as regards its nature, scope and manner” until completion of the sale.
The purchaser argued that the vendor repudiated the contract as it would not receive the business as a going concern. The vendor issued a notice to complete, and the seller alleged that the vendor was not ready willing and able to complete at the time of the notice so could not press for completion.
Overturning an earlier decision of the NSW Court of Appeal, the High Court held that, in context, a reasonable businessperson in the position of the parties would understand the obligation to contain an inherent requirement to comply with the law. There was no obligation on the vendor to breach public health laws.
Although the case concerned the terms of a specific contract and the unusual trading conditions and health laws operating at the time, the decision may be relevant in situations where other legal regulations prevent or make it unlawful to trade in the ordinary course where similar contractual obligations require the seller of a business to deliver it as a “going concern”.