Carrying on Business in a Sale

A recent decision of the New South Wales Court of Appeal has highlighted the need to
consider carefully the words used in a contract for the sale of a business where the contract
is referring to the continuation of the business by the vendor up to and including completion.

In addition to other considerations, the decision highlighted the difference between the
expression “in the ordinary course of business” which has been defined as:

“’In the ordinary course of business’ refers to ‘business’ as a general conception and
is not restricted to the conduct of any particular business … but is referring to the
transaction of business as a known and recognised activity issued by …

And the words used in the case:

“’The Vendor must carry on the Business in the usual and ordinary course as regards
its nature, scope and manner …

In the period subsequent to exchange of contracts but prior to completion Public Health
Orders were made which restricted the legally permitted terms of trade of the Business.
Included in the considerations for the Court were the questions:

  1. Whether the requirement under the contract to “carry on the Business in the usual and
    ordinary course as regards its nature, scope and manner” had the effect of imposing an
    obligation on the Vendor to carry on its business irrespective of any Public Health
    Order or whether those words were affected by the Public Health Order restricting the
    hours and conditions of trade of the Business.
  2. Whether the obligation of the Vendor to continue to carry on the Business was an
    essential condition of the Contract.

In the circumstance of the case, the majority of the New South Wales Court of Appeal took
the view that even though the Vendors were carrying on the Business in accordance with the
Public Health Order, the Vendors were not “carrying on the Business in the usual and
ordinary course as regards its nature, scope and manner”.

Having regard to the difficulties that have been encountered in the conduct of trading
activities during the various restrictions imposed by Public Health Orders, and/or limitations
on the conduct of business that may be undertaken voluntarily as a result of the pandemic
and, the possible occurrence of such disruptions in the future, it is necessary to give careful
consideration to the wording used in contracts for the sale of business where those words
require the vendor to continue to carry on the business being sold up until the date of
completion.

Related Tag: Newcastle Lawyers, Business Lawyer Newcastle

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