Decided 4 November 1996 End date November 4, 1996 | Citation(s) [1997] 1 NZLR 537 | |
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Full case name Gore District Council v Power Co Ltd Judge(s) sitting Richardson P, McKay J, Henry, Keith, Blanchard J Ruling court Court of Appeal of New Zealand | ||
Gore District Council v Power Co Ltd [1997] 1 NZLR 537 is a cited case in New Zealand that confirms that a contract can be for an indefinite term, as well as confirming that a contract does not become frustrated simply due to it being a bad bargain.
Contents
Background
In 1927, the Gore Borough Council transferred its local power supply assets to the Southland Electric Power Board (later to become Power Co), in return for Power Co supplying all the council's electricity for 1 penny a unit "for all time hereafter."
With no mechanism for increasing the price to allow for inflation, etc., this contract subsequently became somewhat onerous for Power Co, as by 1994 the unit price of electricity had increased by 770%. On top of that, the council's power usage had also increased by 840%.
Faced with an annual loss of $188,000 in supplying the council's electricity under the contract, in 1995 Power Co gave the council 15 months' notice of termination of the contract, citing that the ability to terminate the contract was implied, and failing that, that the contract was frustrated due the change of circumstances that has occurred since 1927, including the substantial inflation.
Decision
The court ruled that a contract for an indefinite term whilst may be rare, is not forbidden under contract law. The court also denied the contract was frustrated as contracts are not frustrated just because they turn out to be bad bargains.