PLANET KIDS LTD V AUCKLAND COUNCIL COA CA58/2012

PLANET KIDS LTD V AUCKLAND COUNCIL COA CA58/2012 [30 November 2012]IN THE COURT OF APPEAL OF NEW ZEALANDCA58/2012[2012] NZCA 562BETWEEN PLANET KIDS LIMITEDAppellantAND AUCKLAND COUNCILRespondentHearing: 2 August 2012Court: O'Regan P, Arnold and Ellen France JJCounsel: G P Blanchard for AppellantL A O'Gorman and D T Broadmore for RespondentJudgment: 30 November 2012 at 2.30 pmJUDGMENT OF THE COURTA The appeal is dismissed. The decision to dismiss the appellant'sapplication for summary judgment stands.B The appellant must pay the respondent costs for a standard appeal on a band A basis together with usual disbursements.C Costs in the High Court are to be dealt with in that Court.____________________________________________________________________REASONS OF THE COURT(Given by Ellen France J)Table of ContentsPara NoIntroduction – a frustrated contract? [1]The factual narrative [7]The High Court judgment [16]The settlement agreement [18]The parties' positions [27]Discussion [33]The principles relating to the doctrine of frustration [34]Application of the principles to this case [50]Conclusion [67]Result [70]Introduction – a frustrated contract?[1] Planet Kids Ltd, the appellant, ran a childcare business from premises in Auckland. Planet Kids leased the land on which it ran the business from the Auckland Council, the respondent.[2] In June 2010, Planet Kids and the Council reached an agreement about the basis on which Planet Kids would be compensated for the closure of its childcare business (the settlement agreement). The need for the business closure, and therefore compensation, arose because the Council gave notice of its intention to take possession of the land on which Planet Kids ran its business under the Public Works Act 1981. Planet Kids gave notice of its objection under that Act.[3] A deposit was paid to Planet Kids under the settlement agreement, with the balance payable on the settlement date. However, before the settlement date the premises burnt down. The lease provided that in that event the lease came to an end. The Council treated this event as frustrating the settlement agreement. The Council refused to pay the balance of the compensation and sought recovery of the deposit.[4] Planet Kids brought a proceeding to obtain the compensation payable under the agreement and sought summary judgment. The Council responded by seeking strike out and, in the alternative, summary judgment.[5] Peters J heard the applications. Her Honour concluded that the settlement agreement was frustrated by the fire.1 The parties were thereafter discharged from1 Planet Kids Ltd v Auckland Council HC Auckland CIV-2011-404-1741, 16 December 2011.performing their obligations under the agreement. The application for summary judgment by Planet Kids was dismissed.2 Planet Kids appeals against that decision.[6] The issue on appeal is whether the settlement agreement was frustrated when fire destroyed the premises bringing the lease to an end.The factual narrative[7] There is no dispute over the material facts.3 Planet Kids leased the land and buildings on the property at Rankin Avenue, New Lynn, Auckland at the relevanttime. Planet Kids' childcare business was operated from those premises. Subject tothe exercise of rights to renew, the lease ran until December 2016.[8] Auckland Council's predecessor, the Waitakere City Council, acquired the reversion in the land in 2004. It seems that, fairly soon after that, Planet Kids became aware that the Council wanted to extend a nearby road and form a new intersection. These works, or at least a part of them, could only occur if Planet Kids gave up its lease.[9] The Council had power to acquire Planet Kids' leasehold interest either byagreement or compulsorily under the Public Works Act. Under either scenario, the Council would have to compensate Planet Kids.[10] There were some initial discussions between the parties about the basis on which the Council might acquire the leasehold interest. No agreement was reached. Accordingly, in early 2010 the Council started the process of acquiring the leasehold interest under the Public Works Act. On 2 March 2010, the Council gave notice to Planet Kids of its intention to take the leasehold interest under the Public Works Act for roading purposes. At the end of that month, Planet Kids lodged an objection to the notice with the Environment Court. The objection relied on the remaining term of the lease and the effect on the business. Further discussions followed, and by the end of April 2010, the parties had reached substantial agreement on the terms of a2 The Council's application for summary judgment or strike out was adjourned.3 We largely adopt the description in Peters J's judgment at [5]–[12].settlement arrangement under which Planet Kids would surrender its lease in exchange for a compensation payment by the Council.[11] The settlement agreement was executed on 3 June 2010.[12] In essence, the settlement agreement provided for payment of a sum to Planet Kids in full and final settlement of any claim Planet Kids might have for compensation under the Act. The Council was to pay a deposit of 10 per cent of the agreed sum on execution of the agreement. The deposit was duly paid. The balance was to be paid on the settlement date, which was 20 December 2010 or earlier if agreed. As part of the arrangement, the parties settled a rental dispute between them, which included the Council forgiving some $40,000 by way of unpaid rental.[13] In late September 2010 the Council let the $20 million tender for the works affecting the Rankin Avenue property. The tender was awarded on 1 October 2010. On 2 October 2010, a fire destroyed the building from which Planet Kids operated. The evidence suggested the fire was lit deliberately but the person(s) involved have not been identified.[14] The parties agree that the effect of cl 40 of the lease is that the lease terminated with immediate effect as a result of the destruction caused by the fire.[15] As we have foreshadowed, the Council took the view the termination of the lease brought the settlement agreement to an end because it was thereby frustrated. The Council said it was entitled to recover the deposit and to require Planet Kids to pay the $40,000 by way of forgiven rental. Planet Kids' response was to issue a proceeding claiming judgment in the sum of $413,679.38. That was the balance of the agreed compensation ($560,000) less the deposit paid, vehicles kept, and insurance on the plant and equipment4 plus GST. The various interlocutory applications we have referred to were then made and dealt with by Peters J.4 The insurance payment was just over $133,000.The High Court judgment[16] Peters J accepted the Council's submission that the basic assumption of theparties in entering the agreement was that Planet Kids would have an estate or interest in the land at the date of settlement. That assumption was destroyed by the termination of the lease. It followed, Peters J said, that the effect of the termination of the lease was to frustrate the settlement agreement.[17] Before we discuss the parties' competing contentions, we need to say a little more about the settlement agreement.The settlement agreement[18] The background to the agreement records first, that Planet Kids carries on itsbusiness at the premises under the lease. Secondly, the Council's proposed worksand their impact on the premises is noted. Thirdly, the agreement records that theparties have negotiated "a basis for payment of compensation under the Public Works Act for the closure of [Planet Kids'] business". The agreement continues by noting that payment of compensation on the basis of business relocation and disturbance is not a fair basis for compensation as Planet Kids has not been able to relocate. Accordingly, compensation is calculated on the basis of loss of goodwill.[19] The agreement records the following terms:1. The Council will pay to the Lessee in full and final settlement of any claim for compensation that the Lessee may have under [the Public Works Act] and arising directly or indirectly out of the undertaking of the works by the Council and the closure of the Lessee's Business, and the Lessee willaccept payment on that basis, the following amounts:a) For the goodwill of the business, pursuant to s 68(1)(b) [of thePublic Works Act], together with all of the Lessee's chattels andplant on the premises with the exception of those chattels or plant listed in Appendix B, the sum of $538,000.00 plus GST; andb) A sum sufficient to reimburse the reasonable valuation, accountancy and legal fees incurred by the Lessee relating to the negotiation and settlement of this agreement, pursuant to s 66(1)(a)(ii) [of the Public Works Act] .[20] Provision is then made for payment of the deposit. Then, on settlement date, the agreement provides that Planet Kids will yield up vacant possession and deliver to the Council:a) a validly executed surrender of the lease andb) a validly executed restraint of trade covenant [on agreed terms] .5The settlement date was defined in cl 2 as 20 December 2010 or such earlier date as agreed by the parties.[21] The agreement includes various warranties by Planet Kids. It makes provision for the apportionment of rental and other outgoings in respect of the premises. The agreement also resolves a dispute between the parties over rental and other payments. Clause 6 records the Council's agreement that in consideration ofPlanet Kids entering into the agreement, the sum of just over $40,000 in rental due to the Council under the lease is forgiven and no longer owed to the Council. Under cl 7, it was agreed that for the period of 1 April 2010 until settlement date, Planet Kids would pay the monthly rental of approximately $11,200 due under the lease.[22] The settlement agreement accordingly performed two functions – it settled the compensation as between the Council as the acquirer of Planet Kids' interest in the land and Planet Kids as the holder of the interest and it settled a dispute between the parties as landlord and tenant concerning rental.[23] Clause 8 of the agreement states that Planet Kids' business remains at its solerisk until the settlement date.[24] In terms of cl 9, Planet Kids acknowledges that the Council is not buying thechildcare business but "merely compensating" Planet Kids for closure of thebusiness on the same basis as if the business had been sold as a going concern.[25] Clause 11 records the parties' agreement to maintain confidentiality.5 The restraint of trade prevented the operation of a childcare business within a 1 km area forone year.[26] Finally, the agreement entitled the Council to enter on to the land for the purpose of conducting investigations or preliminary work considered necessary by the Council in relation to the roading works. Notice was required prior to entry and the work was not to interfere with the conduct of the childcare business.The parties' positions[27] For the appellant, Mr Blanchard characterises this as a case of frustration of purpose, not impossibility. In such cases, he submits the Court is required to look at the benefits each party was to receive and what benefits are now not achievable. A contract will only be frustrated on this basis if no part of the contractual purpose (other than a part which is wholly trivial) can be achieved. It is not enough for the party seeking to rely on frustration to show the main purpose has been frustrated. Here, Mr Blanchard says, the Council obtained a real benefit from the agreement, namely, certainty. With certainty, the Council was able to, for example, achieve early access to the property and get the tender process under way, as well as resolving the dispute over rental. That certainty was not removed by the supervening event and the Council did rely on it.[28] In addition, Mr Blanchard says it is necessary for a party relying on frustration to show hardship has resulted from the supervening event. There is no hardship for the Council should it have to pay out in terms of the agreement. It has achieved the outcome sought, and sooner than it would have under the agreement.[29] Finally, it is submitted the contract was not frustrated because the supervening event was either foreseen or foreseeable. This is a reference to cl 40 of the lease dealing with the effect of the destruction of the premises.[30] By contrast, Ms O'Gorman for the Council says the starting point is to look atthe contract. The question is whether the supervening event made performance impossible or so radically different from what the parties intended that performance would be of a wholly different contract to that which the parties agreed.[31] On her analysis, the basis of the contract was that on the settlement date, Planet Kids would have an interest in land that the Council needed to acquire for public work purposes thus requiring payment of compensation by the Council for the interest. The common contractual purpose, objectively, was to achieve that exchange on settlement date. That did not and could not occur because of the fire prior to settlement date. Hence, Ms O'Gorman says, performance was impossible becausePlanet Kids had no property interest in the land, its chattels were destroyed, and it was no longer operating its business.[32] Finally, in reliance on The Eugenia the Council argues that if, as in this case, parties have foreseen an event but not made any provision for it in their contract, that will not necessarily prevent the doctrine of frustration from applying when the event occurs.6 Ms O'Gorman emphasises that a high degree of foreseeability is required to exclude the doctrine of frustration.Discussion[33] We first discuss the relevant principles.The principles relating to the doctrine of frustration[34] The doctrine of frustration has developed as an exception to the principle of contractual certainty. As both parties note, the juristic basis for the doctrine is a little unclear. Peel notes that discussions of the issue sometimes attempt to justify the doctrine, and sometimes to outline some general rule for describing the conditions in which frustration operates. The author identifies five principal theories found in the case law. Those theories are as follows:76 The Eugenia [1964] 2 QB 226 (CA) at 239.7 Edwin Peel Treitel: The Law of Contract (13th ed, Sweet & Maxwell, London, 2011) at [19–114]–[19–123]. The authors of Chitty on Contracts also refer to the various theories includingimplied term test, the test of a radical change in the obligation, construction of the contract, totalfailure of consideration, fairness and the foundation of contract theory: HG Beale (ed) Chitty onContracts (30th ed, Sweet & Maxwell, London, 2008) Vol 1 at [23–007]–[23–019].(a) "Implied term".8 Peel notes that this theory is that the contract"is discharged because it impliedly provides that in the eventswhich have happened it shall cease to bind".9(b) "Just solution".10 Peel here refers to Lord Sumner's description of the doctrine of frustration as "a device by whichthe rules as to absolute contracts are reconciled with a special exception which justice demands".11(c) "Foundation of the contract".12 Reference is made in this context to Lord Haldane in the Tamplin case who referred to anoccurrence of "a character and extent so sweeping that thefoundation of what the parties are deemed to have had in contemplation has disappeared, and the contract itself hasvanished with that foundation".13(d) "Construction".14 Peel notes that "[a]ll the theories so far stated depend in the last resort on the construction of thecontract".15 Peel also notes that after setting out the implied term theory, Lord Loreburn advanced as the ultimate test:"what, in fact, is the true meaning of the contract?"16(e) "Failure of consideration".17 This theory is based on the notion that the party does not receive the performance of what he or she bargained.[35] Burrows also notes that the legal basis for the doctrine of frustration has been controversial.18 He suggests that the real question is "whether the courts strive to8 At [19–115].9 At [19–115].10 At [19–116].11 Hirji Mulji v Cheong Yue SS Co Ltd [1926] AC 497 (PC) at 510, cited at [19–116].12 At [19–117].13 F A Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397(HL) at 406. Peel at [19–117] notes that Lord Haldane was dissenting.14 At [19–118].15 At [19–118].16 F A Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd, above n 13, at 404 cited at [19–118].17 At [19–119].18 John Burrows, Jeremy Finn & Stephen Todd Law of Contract in New Zealand (4th ed,LexisNexis, Wellington, 2012) at [20.1.2].give effect to the supposed intention of the parties or whether they act independentlyand impose the solution that seems reasonable and just".19[36] This Court in The Power Co Ltd v Gore District Council similarly noted thatthe "precise limits of the doctrine of frustration have been the subject of considerabledebate".20 The Court said that the cases are based on various theories.[37] The Court went on to note that in British Movietonews News Ltd v London and District Cinemas Ltd, the House of Lords rejected the notion that the Court had any power to absolve the parties from their contract by "substituting its own notion of what was 'just and reasonable'".21 Rather, it was a question of "the properinterpretation of the contract, having regard to the circumstances in which it wasmade, including any necessary implication".22 The Court said that this view appears to have been endorsed in subsequent cases, although variously expressed. The Courtdiscussed the House of Lords' decision in Davis Contractors Ltd v Fareham Urban District Council.23 In that case Lord Reid said that he preferred to approach the matter as a question of construction, namely, "whether the parties ever agreed to be bound in the fundamentally different situation which has emerged".24[38] In The Power Co Ltd this Court said:25It is not a matter of attributing some presumed intention of the parties in a situation which they have not considered, but rather of looking at the situation which they did consider. Their agreement should not be treated as applying in a fundamentally different situation. The starting point, however,must still be the contract. The limited scope of the principle of frustration is emphasised by such phrases as "fundamentally different" and "radically different" used in the earlier cases .[39] The Court made the point that the test is not whether the contract has become more onerous or performance more expensive. Rather it is a much higher one. Accordingly, the Court in that case rejected the claim that the impact of inflation had19 At [20.1.2].20 The Power Co Ltd v Gore District Council [1997] 1 NZLR 537 (CA) at 552.21 British Movietone News Ltd v London and District Cinemas Ltd [1952] AC 166 (HL) cited at552.22 At 552.23 Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 (HL).24 At 552.25 At 552–553.so altered the long-term contract relating to the charge for the supply of electricity as to amount to frustration.[40] The approach to frustration has been discussed by the Supreme Court inDysart Timbers Ltd v Nielsen.26 That was a case about whether an offer had lapsed so it is not directly on point. However, the approach taken by this Court inThe Power Co case is consistent with the observations made in Dysart Timbers Ltd v Nielsen. Tipping J, delivering the judgment of himself and Wilson J, referred to the discussion in Treitel's Frustration and Force Majeure.27 In the passage cited, the author discussed the tension between the principle of sanctity of contract and a counter-principle, stating:28On the other hand, the principle of sanctity of contract, like many legal principles, is not considered to express an absolute value. It is qualified by a counter-principle that parties who enter into contracts often do so on the basis of certain shared, but unexpressed assumptions. [The] effect [of the counter-principle] is that contractual obligations may be discharged by supervening events where these have brought about a change of circumstances so significant as to destroy a basic assumption which the parties had made when they entered into the contract.[41] Tipping J said that this passage "sums up the essence of a key aspect of the common law concept of frustration".29[42] McGrath J, dissenting, referred to the connotation, as in frustration cases, of an event:30[58] which makes performance of a party's obligations impossible orso radically different from what the parties intended that performance would be of a wholly different contract to that which the parties had agreed. It is also sometimes said that frustration operates to discharge contractual parties from their obligations because it would be unjust or absurd to continue to impose them.26 Dysart Timbers Ltd v Nielsen [2009] NZSC 43, [2009] 3 NZLR 160.27 At [30]. Elias CJ and Blanchard J, in a judgment delivered by Blanchard J, said they preferredthe legal analysis of Tipping J: at [1].28 GH Treitel, Frustration and Force Majeure (2nd ed, Sweet & Maxwell, London, 2004) cited at[30].29 At [31].30 (Footnotes omitted.)[59] There is, however, an important difference that must be considered before accepting the validity of the analogy with frustration in the present circumstances. No contract has been concluded at the time of the change in circumstances. Frustration has a high threshold for fundamental policy reasons, linked to the sanctity of [contract]. As Lord Bingham once said:Since the effect of frustration is to kill the contract and discharge the parties from further liability under it, the doctrine is not to be lightly invoked, must be kept within very narrow limits and ought not to be extended.[60] Frustration, moreover, has a test which is imprecise in relation tothe degree or extent to which an event affects the foundation on which the parties contracted.[43] Finally, we briefly discuss the earlier authorities of Krell v Henry31 and Herne Bay Steam Boat Company v Hutton,32 as these cases featured in argument.[44] Krell v Henry involved a contract to hire rooms for the days on which it would be possible to view processions in connection with the coronation of King Edward VII. The Court of Appeal concluded that the contract was frustrated when the processions did not take place on the stated days.[45] Vaughan Williams LJ, delivering the judgment of the Court, said the contractwas "a licence to use rooms for a particular purpose and none other".33 That purpose was the foundation of the contract and once that was removed, the doctrine of frustration applied.[46] Vaughan Williams LJ contrasted the position in Krell v Henry with that of the engagement of a taxi driver to take someone to Epsom on Derby Day at an enhanced price. Cancellation of the Derby would not frustrate the contract because seeing the Derby race was not the foundation of the contract.[47] The same Court did not, however, consider the contract in the Herne Bay Steam Boat case was frustrated. That case involved the hire of a steam boat to see the royal naval review. The review was cancelled, although the fleet remained anchored at Spithead. Vaughan Williams LJ said that because the purposes31 Krell v Henry [1903] 2 KB 740 (CA).32 Herne Bay Steam Boat Company v Hutton [1903] 2 KB 683 (CA).33 At 750.(of seeing the review and being taken around the fleet) became impossible that did not mean the contract was frustrated. The happening of the naval review was not the foundation of the contract.[48] Romer LJ saw the position as closer to that of the taxi hire.[49] As Chitty notes, the two cases are difficult to reconcile.34 Certainly, as Chitty says:35 it is clear that it is Krell which is the exceptional case: it has been subject to much criticism and as an authority it "is certainly not one to be extended".The vital factor in Krell was probably that the flat was hired for the days but not the nights and so the only conceivable purpose of the contract was to view the coronation procession.Application of the principles to this case[50] Applying these authorities, it seems to us that the starting point is the contract.[51] There are two possible ways of construing the settlement agreement. On one analysis, the context of the agreement is that it reflects the intention of the Council as landlord to get Planet Kids, a thriving business, to move on so that the Council could obtain the use of the land. Hence, as Mr Blanchard points out, the agreement confers some benefits such as early entry on to the land and the resolution of the rentaldispute which are not linked in to the Public Works Act and the Council's powersand obligations under that Act. On this analysis, the agreement is simply a way of achieving surrender of the lease.[52] This approach is supported by the fact that if the fire had occurred only one or two days before the settlement date the position would have been no different in terms of what the parties were required to do to complete the contract.[53] Applying this approach, the contract is not frustrated. It is immaterial that there was no lease to surrender because the intention was to remove the business and34 Chitty on Contracts, above n 7, at [23–034]; see also Peel, above n 7, at [19-042].35 At [20–034] (footnotes omitted).that goal has been achieved. There can be no hardship for the Council in paying for the settlement sum because it has achieved its objective. Further, the Council has obtained the benefit of certainty which Mr Blanchard emphasises. The Council has also resolved other matters in issue between the parties, particularly, the dispute over rental.[54] The other way of construing the agreement is to view it as the contractualmeans of implementing the Council's powers under the Public Works Act. On thisbasis the contract is frustrated because the intention is to obtain the surrender of the leasehold interest to enable the works to continue. There is no longer any leasehold interest and accordingly the agreement is wholly or radically different from that which the parties had agreed. This was Peters J's view.[55] We have concluded that the Judge was correct and the contract was frustrated. The contract had a dual function in the sense that it both fixed compensation for the compulsory acquisition and resolved the rental dispute. However, it is clear that the parties entered into it essentially as a means of resolving the dispute between them which arose as a result of the Council's exercise of itsstatutory powers under the Public Works Act. As Peters J said, it was the resultant need to have Planet Kids surrender its leasehold interest that drove the agreement.36The case does not therefore invoke the concern frequently underlying the limitation of the doctrine of frustration, namely, that a party should not by this means avoid an agreement which is now just a bad bargain.37[56] Moreover, the Council has entered into the contract in the exercise of its powers under that Act. That is apparent from a comparison between the powers and processes under the Public Works Act and the settlement agreement.[57] Section 16(2) of the Public Works Act relevantly empowered the Council toacquire "under this Act" any land required for a local work for which it has financial authority. Section 17(1) states that the Council may enter into an agreement to36 At [31].37 Peel, above n 7, at [19-005].purchase land for any public work. "Land" is defined as including any estate orinterest in land.38[58] Before proceeding to take land for a public work, a negotiation process must be undertaken following notice.39 As part of this process the Council must invite the owner to sell the land to it, and following a valuation process, advise the owner ofthe estimated value. An owner includes "any person who is in occupation of the landunder any lease".40[59] Every person having an estate or interest in land intended to be taken in this way may object to the taking in the Environment Court, as Planet Kids did.[60] Various provisions then deal with compensation.41 This Court in Te Marua Ltd v Wellington Regional Water Board said that any losses incurred prior to the settlement date of a public works acquisition are not compensable.42 Compensation for business loss is provided for in s 68. Section 68(1) provides that the owner of any land taken or acquired under the Act for a public work who has a business located on that land shall be entitled to compensation for, relevantly:(b) Loss of the goodwill of any such business, if—(i) The land is valued on the basis of its existing use; and(ii) The owner gives such assurances and undertakings not to dispose of the goodwill and not to engage in any similar trade or business as may be required by the local authority.[61] That process and the Council's powers are mirrored in the agreement between Planet Kids and the Council. Hence, the agreement provides that the parties have negotiated a basis for payment of compensation under the Public Works Act for theclosure of the lessee's business. The agreement provides for payment made in settlement of any compensation claim under that Act. The compensation payable for goodwill is expressed to be pursuant to s 68(1)(b) of the Public Works Act.38 Public Works Act 1981, s 2.39 Public Works Act 1981, s 18.40 Public Works Act 1981, s 59.41 Public Works Act 1981, ss 60–70.42 Te Marua Ltd v Wellington Regional Water Board [1983] NZLR 694 (CA).Further, as required by s 68(1)(b)(ii), Planet Kids entered into a restraint of trade. Finally, Planet Kids obtained expenses as provided for by s 66(1)(a)(ii).[62] One way of putting the analysis we have adopted is to say the Council is acting primarily as regulator rather than a landlord.43 Another way of testing our approach is to ask whether the position would be the same if the Council was an ordinary landowner, that is, to assume that the regulatory overlay was missing. There is an artificiality in this exercise because, on our approach, the various powers, obligations and rights under the Public Works Act are important. There is a further level of artificiality in this alternative hypothesis because these issues are normally dealt with by insurance clauses.44 Putting those caveats to one side, it seems to us that the analysis would be the same. The Council in this hypothetical scenario would be buying the leasehold interest and the building. With the burning of the building, there would be no leasehold interest and so nothing for the Council to buy.[63] There is force in the argument for Planet Kids that the contract is not just about the leasehold interest and that there is no hardship in requiring the Council to pay. Indeed, any hardship arguably falls on Planet Kids because Planet Kids has partially performed the contract, for instance by allowing the Council access to the premises. The Council in its evidence states that its insurers have not indemnified the Council for the value of the premises after the fire. The Council has received from its insurers over $36,500 for loss of rent and a little over $51,200 that has been applied to decontamination of asbestos on the premises. However, we agree with the Council that when the supervening event makes the contract so radically different from that to which the parties have agreed, that comprises hardship in terms of the doctrine of frustration.[64] A further response to Planet Kids' submission about part performance is that the Frustrated Contracts Act 1944 expressly contemplates that there may have been part performance of a frustrated contract. For example, 3(2) deals with the43 See Petrocorp Exploration Ltd v Butcher [1991] 1 NZLR 1 (CA).44 Mark Stitt, one of the directors of Planet Kids, explained in his affidavit that Planet Kids hadbusiness interruption insurance but the insurance company was taking the position that theCouncil was not entitled to terminate the contract, that they had agreed to end the business on20 December 2010, and that no business interruption insurance monies are payable for lossesbeyond that date.recoverability of sums paid and s 3(3) with the situation where a party has obtained a valuable benefit from the contract prior to discharge. Further, s 4(4) makes provision for the severance of a part wholly performed before the time of discharge or performed except for the payment of specified sums.[65] Although we acknowledge the merit of the opposing argument, we consider the contract has the effect ascribed to it by Peters J. The other matters dealt with, such as the rental dispute, can be described as peripheral.[66] Finally, we agree with the submissions for the Council that the application of the doctrine of frustration is not affected by the foreseeability of the risk of a fire. The doctrine is applicable to foreseeable events so long as the party asserting frustration did not assume the risk of the supervening event occurring.45 Here, theagreement provided that any risks involving Planet Kids' business remained withPlanet Kids prior to the settlement date.Conclusion[67] This is not an easy case and the outcome may well appear a harsh one. However, Planet Kids is not left without a remedy. The Frustrated Contracts Act was introduced against the backdrop of similar legislative changes in England and what were seen as unsatisfactory outcomes produced by the doctrine of frustration during wartime. On the introduction of the Frustrated Contracts Bill, Hon Mr Mason, Attorney-General, referred to the difficulties arising from the inability to make adjustments following the frustration of a contract.46 Mr Watts MPreferred to the harsh results in the "black out" cases where traders had entered intocontracts for neon signs.47 They paid their money in advance and lost those payments when the black out was imposed.[68] In this case, it would appear it is open to Planet Kids to argue that the Council had obtained a benefit in terms of s 3(3) of the Frustrated Contracts Act for which45 The Eugenia, above n 6, at 239 and 243.46 (23 November 1944) 267 NZPD 293.47 (23 November 1944) 267 NZPD 298. For example, Leiston Gas Coy v Leiston-Cum-SizewellUrban District Council [1916] 2 KB 428 (CA) (a case during WWI) and Scanlan's New NeonLtd v Tooheys Ltd (1943) 67 CLR 169 (a case during WWII).Planet Kids could seek recovery. Peters J in adjourning the Council's application forsummary judgment and strike out noted there may need to be some relief under the Frustrated Contracts Act.[69] We add that the Council said it was willing to keep to the agreement relating to the forgiveness of past rent provided the deposit was repaid by a specified date. That approach, if maintained, would deal with one of the implications of this decision for Planet Kids.Result[70] For the reasons we have given, the appeal is dismissed. The decision to dismiss the appellant's application for summary judgment stands.[71] The respondent, having succeeded, is entitled to costs. We make an order that the appellant pay the respondent costs for a standard appeal on a band A basis together with usual disbursements. Costs in the High Court were reserved and those costs are to be dealt with in that Court.Solicitors:Lowndes Associates, Auckland for AppellantBuddle Findlay, Auckland for Respondent