Applicants Claim Refund for Unused Accommodation Contract

Foster & Sieker v Theodor (Civil Claims) [2021] VCAT 1025 (3 September 2021)

The applicants availed a short-stay holiday accommodation contract offered by the respondent.  However, the use thereof was prevented by COVID-19 restrictions.  The applicants are now claiming for a refund of the booking tariff.  The Court, in ruling on this dispute, assessed whether the doctrine of frustrated contracts applies. 

Facts:

The Respondent, Suzanne Theodor, is in the business of providing short-stay, holiday accommodation and trades through a website with the domain name: www.playshack.com.au. 

The Respondent offers accommodation at various holiday sites described as Play Shack 5, Play Shacks 3 & 4, and the Manna Gum Alpine Lodge.  On 27 May 2020, Ms Foster enquired about booking accommodation at Play Shack 5 on the Airbnb website.  While booking online, Ms Foster was obliged to click on a box marked “I have read and I accept the terms and conditions for this booking." 

The Applicants brought this proceeding to recover the sum of $2,950, paid by them to the Respondent for the provision of short-stay, holiday accommodation.  The Applicants contended that the short-stay accommodation contract was frustrated by State government COVID-19 restrictions.  The Respondent argued that at the time the contract was entered into, the prospect of government restrictions being imposed, owing to the COVID-19 pandemic, was foreseeable, hence the Applicants must be taken to have assumed the risk that the accommodation would not be available to them at the time of their planned holiday.  As the risk was foreseeable, the parties had made contractual provision for the impact of “pandemics, government restrictions on home gatherings, acts of god [sic], force majeure events or other circumstances."

On that basis, the Applicants were bound by this contractual term which precluded the recovery of the deposit.  The applicant argued that the terms and conditions given to them contained no mention of “pandemics,” “ government restrictions,” “acts of God,” or “force majeure events."  The cancellation term did not apply because they did not cancel the booking, the booking was precluded by a supervening event, namely government lock-down orders, which frustrated the contract; and on the frustration of the contract, the contract was immediately discharged and the cancellation term contained within it ceased its operation.

Issues:

I. Whether or not the doctrine of frustrated contracts applies.

II. Whether or not a contractual cancellation clause applies. 

III.Whether or not an alleged frustrating event must be unforeseen. 

Applicable law:

Australian Consumer Law and Fair Trading Act 2012 Part 3.2 - provides for a measure of refund. 

Davis Contractors Ltd v Fareham Urban District Council [1956] UKHL 3; [1956] AC 696 - where his Lordship said that frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.

Lauritzen A. S. v Wijismuller B.V. (The Super Servant Two) [1990] 1 Lloyd’s Rep. 1 - where it was provided that the doctrine of frustration applied to “kill the contact and discharge the parties from further liability under it".

Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR - provides that a contract may be discharged under the doctrine of “frustration” when something occurs after the formation of the contract which renders it physically or commercially impossible to fulfill the contract or transforms the obligation to perform into a radically different obligation from that undertaken at the moment of entry into the contract.

Scanlans New Neon Ltd v Tooheys Ltd [1943] HCA 43; (1943) 67 CLR 169 - provides that a subsequent change in the law or in the legal position affecting a contract is well recognised as a head of frustration.

Larrinaga & Co Ltd v Societe Franco-Americaine des Phosphates de Medulla, Paris(1923) 39 T.L.R. 316 - provides that the doctrine of frustration was concerned with unforeseen, supervening events, not events which have been anticipated and provided for in the contract itself.

Joseph Constantine SS Line Ltd v Imperial Smelting Corp. Ltd[1942] A.C. 154 - where it was held that a clause in a contract, which is intended to deal with the frustrating event, will normally preclude the application of the doctrine of frustration.

Bank Line v Arthur Capel & Co [1919] A.C.435 at 455; The Florida[2006] EWHC 1137 - where the court have made it clear that such clauses must be narrowly construed and the clause must deal with the consequences of the supervening event in a manner that makes “full and complete” provision for the “effects" of the supervening event upon the parties’ rights and obligations.

Baltic shipping Co v Dillon(1991) 22 NSWLR 1 - provides that contract law requires that reasonable notice of the terms and conditions must be given prior to the formation of the contract.

GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR - where if the disputed term was indeed incorporated into the contract, then, on the facts, the dispatch of the terms is unlikely to constitute a waiver.

Waltons Stores (Interstate) Ltd v Maher(1988) 164 CLR 387 - where if the disputed term was indeed incorporated into the contract, then, on the facts, the dispatch of the terms is unlikely to constitute an estoppel.

Bank Line Ltd v Arthur Capel & Co[1918] UKHL 1; [1919] A.C. 435 - where if the disputed clause does not address the fundamental issue in this dispute, let alone make any complete or adequate provision for the legal consequences of frustration.

Chapman v Taylor[2004] NSWCA 456 - where even if a clause was incorporated into the contract then it cannot exclude the application of the doctrine of frustration.

Codelfa Construction Pty Ltd v State Rail Authority of NSW(1982) 149 CLR 337 - provides the relevant test for “foreseeability” under the doctrine of frustration, namely that, “a person of ordinary intelligence."

Simmons Ltd v Hay (1964) [1964-5] NSWR 416 - where the parties have foreseen the supervening event, but have not made effective provision for it in their contract, they may be prevented from relying upon the doctrine of frustration.

BTP Tioxide Ltd v Pioneer Shipping Ltd & Armada Marine SA (The Nema)[1981] 2 Lloyds Rep 239 - provides that the mere fact that an event was foreseeable necessarily excludes the application of the doctrine of frustration.

British Movietone News Ltd v London & District Cinemas Ltd(1952) AC 166 - authority to the effect that, even where events have not merely been foreseen, but have been made the subject of an express contractual provision, the doctrine of frustration may still apply.

Tatem v Gamboa[1939] 1 KB 132 - requires a tribunal, in circumstances where the contingency was foreseeable, to objectively construe the contract so as to determine whether the silence of the party seeking to rely upon frustration indicates that they had the intention to assume the risk of the frustrating event or whether their silence indicates an objective intention to rely upon the relevant law to deal with the consequences of the event.

Edwinton Commercial Corporation & Global Tradeways Ltd v Tsavliris Russ (Worldwide Salvage & Towage) Ltd (The Sea Angel) [2007] EWCA Crim 2062; [2007] 2 Lloyds Rep. 517 - provides that a tribunal is not limited in its considerations to the mere construction of the contract.

Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema)[1982] AC 724 - the English Court of Appeal considered that the application of the doctrine of frustration required a “multi-factorial approach”. 

Lobb v Vasey Housing Auxiliary (War Widows Guild)[1963] VicRp 38; [1963] VR 239 - provides that the factors required to be considered by a tribunal when determining whether the doctrine applied included the following:

• the terms of the contract itself, together with its matrix or context;
• the parties’ knowledge, expectations, assumptions and contemplations, in particular as to risk at the time of contracting, so far as these can be ascribed mutually and objectively;
• the nature of the supervening event;
• the parties’ reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances; and
• a measurement of the consequences of the tribunal’s decision against the demands of justice.

Analysis:

The basis of the Applicants’ case was that the doctrine of frustration applied to “kill the contact and discharge the parties from further liability under it”.  The Applicants and the Respondent accused each other of cancelling the contract but neither party expressly rescinded, repudiated or cancelled the contract.  The performance of the contract was precluded by the COVID-19 restrictions.  It was unlawful for the Applicants to travel to and take up the accommodation and it was unlawful for the Respondent to provide the accommodation.

Ms Foster did not signify acceptance of the terms and conditions contained upon the Respondent’s website, by clicking the “acceptance box”, with respect to the booking for the Manna Gum Alpine Lodge.  The booking was done manually, and the Applicants were provided with a different set of terms and conditions, albeit after their entry into the contract.  At the time of the booking, the particulars of the Manna Gum Alpine lodge did not appear on the website.  The Welcome Pack contained a “Print Off” of the details taken from the website together with terms and conditions (which did not contain the disputed term). 

If these documents were printed off the website at or about the date of the Welcome Pack (4 June 2020) or at some other time after 27 May 2020, the disputed term could not have been on the website at the earlier time when the contract was formed and, therefore, it could not have been incorporated into the contract.  Where events have not merely been foreseen, but have been made the subject of an express contractual provision, the doctrine of frustration may still apply.  The trader must know the profit margin on each accommodation contract and can readily factor into these margins, by adjusting the overall price, some component to militate the risk that, for some periods, the accommodation might be unavailable because of COVID-19 restrictions.

The Applicants were given no real opportunity to negotiate the impact of prospective government restrictions on the contract.  In this context, the reality is that neither party anticipated such negotiations.

Conclusion: 

The tribunal orders that the title of this proceeding is amended so that Karina Foster is reinstated as the First-Named Applicant in this proceeding; and the Respondent’s name is corrected to read, Suzanne Theodor.  The tribunal concluded that the disputed term does not, on its own construction, exclude the application of the doctrine of frustration.  The doctrine of frustration remains applicable in the circumstances of this contract, notwithstanding that the relevant contingency was or ought to have been foreseen by the parties.  The Respondent, Suzanne Theodor, must pay to the Applicants, Karina Foster and Liam Sieker, the sum of $2,750.