NZSC 147
This was a successful appeal against a decision that a contract settling proceedings under the Public Works Act had been frustrated by the subject premises catching fire. The appellant operated a childcare business on land leased from Auckland Council (the respondent). The settlement agreement resolved issues between the parties arising from the Council’s notice of intention to acquire the leasehold interest under the Public Works Act for roading purposes. A 10% deposit was paid by Council with the balance to be paid on settlement date (20 December 2010). In early August, the appellant notified staff of the business closure and notified parents in September. A tender for road works was awarded by Council on 1 October 2010. However, on 2 October 2010, the building was destroyed by a fire and according to cl 40.1 of the lease, the agreement was terminated. As a result, Council refused to pay the balance owing under the settlement agreement on the basis that the contract had been frustrated by the lease terminating.
The High Court held that the agreement was frustrated as it was entered into on the basis that the appellant was able to transfer their leasehold interest in the land at the date of settlement. The Court of Appeal upheld the decision of the High Court and considered that, following the termination of the lease, the settlement agreement was wholly or radically different from that which the parties agreed. However, the Supreme Court held that the main purpose of the agreement was settlement of the objection under the Act and this purpose was achieved immediately on entering into agreement.