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APPLICANTS SEEKS REFUND AS A RESULT OF A FRUSTRATED CONTRACT DUE TO THE UNANTICIPATED ARRIVAL OF THE PANDEMIC

Quinn v Hay Events Pty Ltd (Civil Claims) [2021] VCAT 172 (17 March 2021)

This case involves a contract between a betrothed couple and the proprietor of a wedding and reception business where the couple-applicant seeks to refund the deposit given to the respondent as a result of a frustrated contract due to the unanticipated arrival of Covid-19.

Facts:

The respondent is in the business of conducting weddings and receptions in and around the Collingwood Children’s Farm. On 22 November 2019, the applicants booked a large wedding and reception with the respondent to take place on 26 April 2020. The agreed price was $29,809.32. The parties signed a written contract that contained terms and conditions, and under that contract, the applicants paid a deposit of $11,923.72.

The contract contained a detailed list of the things being supplied, which made it clear that $1,500.00 of the price was attributable to the work of the respondent’s event planner, and that $3,960.00 was an out of pocket expense which the respondent had to pay to Collingwood Children’s Farm for use of the grounds.

Part of the process of finalizing the event was that the applicants would attend a “tasting night” to sample menu options and the like, at an additional cost of $160.01. The applicants attended the “tasting night” in February 2020 and so incurred that additional liability.

The unanticipated arrival of Covid-19 a little after the tasting night ruined the applicants’ wedding plans, causing the cancellation of the event on or about 26 March 2020.

The applicants are seeking a refund of $11,013.71. They calculated that it would be fair for the respondent to retain $910.01 out of the deposit of $11,923.72, comprising the $160.01 for the “tasting night”, and $750.00 for work performed by the event planner.

The respondent seeks to retain $3,191.00 of the deposit. It calculates that it has incurred in expenses and overheads a greater sum of $5,280.01, and so is claiming over $2,000.00 less than it might. In rough terms, the respondent would say it has ‘discounted’ that claim by about 40%.

The $5,280.01 is calculated as follows: (a) the amount it paid to Collingwood Children’s Farm for use of the grounds, having successfully negotiated a significant partial refund of its deposit: $250.00 (b) the tasting night: $160.01 (c) direct staff wages: $310.00 (d) overheads calculated as 23% of the event costs of $4,508.00

Issue:

How much is the respondent entitled to retain?

Law:

  • Australian Consumer Law and Fair Trading Act 2012 S.36 (Adjustment of amounts paid or payable to parties to discharged contracts)

(1) All amounts paid to any party under a discharged contract before the time of discharge are recoverable

(2) All amounts payable to any party under a discharged contract before the time of discharge cease to be payable

 

  • Australian Consumer Law and Fair Trading Act 2012 S.37 (Court may allow amounts paid or payable to be recovered or paid)- Despite section 36, the court may, if it considers it just to do so having regard to all the circumstances of the case, allow a party to a discharged contract—

(a) to whom amounts were paid or are payable under that contract before the time of discharge; and

(b) who has incurred expenses before the time of discharge in or for the purpose of the performance of that contract— to retain or recover (as the case may be) the whole or any part of the amounts paid or payable to that party under the contract in an amount not exceeding the expenses incurred.

 

  • Australian Consumer Law and Fair Trading Act 2012 S.38 (Parties to pay an amount for valuable benefits obtained)

(1) This section applies if a party to a discharged contract obtained a valuable benefit (other than a payment of money to which section 36 or 37 applies) before the time of discharge because of anything done by another party in or for the purpose of the performance of the contract.

(2) Despite section 36, the benefited party is liable to pay to that other party any amount (not exceeding the value of the benefit obtained) that the court considers just having regard to all the circumstances of the case.

(3) For the purpose of subsection (2), the court may have regard to— (a) the amount of any expenses the benefited party incurred before the time of discharge in or for the purpose of the performance of the contract, including any amount paid or payable by the benefited party to any other party under the contract and retained or recoverable by that party under section 36 or 37; (b) the effect, in relation to the benefit obtained, of the circumstances giving rise to the frustration or avoidance of the contract.

(4) For the purpose of this section, if a party to the contract has assumed obligations under the contract in consideration of the conferral of a benefit by another party to the contract on any other person (whether or not that person is a party to the contract), the court may, if in all the circumstances of the case it considers it just to do so, treat any benefit conferred on that other person as a benefit obtained by the party who has assumed those obligations.

 

  • Australian Consumer Law and Fair Trading Act 2012 S.39 (Calculation of expenses incurred)- In estimating, for the purposes of this Division, the amount of any expenses incurred by any party to a discharged contract, the court may include an amount that appears reasonable for— (a) overhead expenses; and (b) work or services performed personally by the party.

Analysis:

The respondent is entitled to the first two sums, of $250.00 and $160.01. The $250.00 falls within section 38(4), and there is no dispute that the respondent is entitled to the $160.01 for the “tasting night”.

In its Points of Defence, the respondent identified items of overheads (which included salaries), by adopting items of expense which it said were taken from its finalized Financial Accounts for the year ending 30 June 2020. They included rent, vehicles, IT, telephone and Internet, repairs, “equipment” – presumably depreciation –, advertising, office supplies, cleaning, taxes, consulting fees paid, insurance, utilities and waste, training expenses, WorkCover, and discounted allowances for accounting and bookkeeping. The Points of Defence say that the rent was $10,400.00 and was only for “office and storage space”, and this no doubt reflects the significance of the respondent including in its price $3,960.00 as an out of pocket expense for the respondent’s use of the Collingwood Children’s Farm’s grounds. The rent included in the overheads is a much smaller sum and is much less directly applicable to the applicants’ event. The respondent has an arrangement with Collingwood Children’s Farm, tied to its renting of the office and storage space, under which it is guaranteed the use of the grounds, subject to paying that fee. The respondent’s business model would not work otherwise.

The respondent says that in the Accounts, overheads amount to 22.9% of the respondent’s revenue. It then applies a percentage of 23% to the price of the applicants’ wedding and reception of $29,809.32, to come to the figure of $4,508.00. Obviously, there is rounding up from 22.9% to 23%, and a minuscule rounding down of the percentage of $0.32 to give that round figure of $4,508.00.

Around 4 months had passed between the contract being entered on November 2019 and it being discharged in March 2020, which is one-third of a year. Could it be said that any of the overheads incurred before November 2019 were incurred for the purpose of the applicants’ reception? Had the event proceeded in April as originally intended, that would still only be 5 months after the contract was made. Is it logical for the respondent to apply 12 months of overheads, rather than 5 months? Is the period of time between the formation of the contract and its discharge even relevant? What if a couple booked a wedding 18 months hence – should they bear a percentage of 18 months’ overheads? These are issues and questions which were not addressed in the evidence, and obviously were not the subject of any expert evidence or analysis. It seems that this explains the respondent’s decision to “discount” its claim for overheads by say 40%, from $5,280.00 to $3,191.00.

In round terms then, the court excludes 8 months of the overheads. 4 months of the overheads identified in the respondent’s Accounts is one-third of the stated figure, and so the court applies one-third of 23% being 7.66%. The respondent can retain 7.66% of $29,809.32, which gives a figure of $2,283.39.

Therefore, from the deposit of $11,923.72, the respondent is entitled to retain the sums of $250.00 + $160.01 + $2,283.39, a total of $2,693.40. Accordingly, allowing the respondent to retain that sum, it must pay the applicants $9,230.32.

Conclusion: The court orders The respondent shall pay the applicants $9,230.32.

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