Question 1

Magic is a popular and boisterous rock group made up of 12 musicians. In

February, 2008 it embarked upon a European tour of 25 different cities.
Magic contracted with Nonentity Productions Ltd, a small and unknown
promoter, to stage its London concert. Nonentity guaranteed payment to
Magic of £2,000,000 or 85% of the profit of ticket sales, whichever was
greater. Nonentity provided Magic with an advance of £500,000. While in
Warsaw, Magic’s lead singer was photographed back stage consuming
illegal drugs. The effect of the drugs was to impair his singing performance
so badly that he was booed off the stage by the audience, many of whom
demanded the return of their money. Potential concert goers in London
were offended by the singer’s acts and concerned about the quality of the
group’s performance. Ticket sales were extremely poor. In addition one of
the Magic musicians was so depressed that he took his own life shortly
before the date of the London concert. The concert was never held.
Nonentity was forced to refund the money on those tickets sold. Magic
claim that it has incurred substantial expenses in travelling to London and
preparing for the concert. It does, however, have insurance to cover loss
arising from the cancellation of any concerts. Nonentity is very busy
handling other concert promotions which arose due to its increased
reputation in the rock music world as a result of its contract with Magic.
However, Nonentity is concerned about the sum it paid Magic and wishes
to recover the money and to withhold the balance of £1, 5000, 000.
Advise Nonentity.

Answer
The above question involved two parties which are Magic, a musicians
group and Nonentity Productions Ltd, a concert promoter company. The
London concert that was promoted by Nonentity for Magic was cancelled
and Nonentity was forced to refund the money on the tickets sold.
Nonentity now wishes to recover the money it paid Magic and to
withhold the balance. Candidate is required to analyse the given facts and
discuss whether the contract has been discharged by frustration or by
breach as well as what relief both parties may be able to seek in the
circumstances.
Frustration occurs where, after the contract was concluded, unforeseen
events occur which make performance of the contract impossible, illegal
or destruction of the common purpose of the contract for both parties.
The courts nowadays adopt a construction approach, i.e. they first assess
the terms of the contract as a whole and then assess the effect the
extraneous events, which have occurred, have upon the nature and terms
of that contract. "...the circumstances in which performance is called for
would render it a thing radically different from that which was
undertaken by the contract", stated by Lord Radcliffe in Davis
Contractors Ltd v Fareham UDC. This position on juridical basis was also
reaffirmed in Great Peace Shipping.
A contract which is frustrated is discharged automatically by the rule of
law regardless of the parties’ intentions, as per Hirji Mulji v Cheong Yue
SS Co. The current leading case on frustration is Taylor v Caldwell. A music
hall that was booked for recitals burnt down several days prior to the
recitals. It was held that where the contract is impossible to perform,
both parties will be automatically discharged from further performance
under the contract. On the facts, one of the Magic group members
suicided shortly before the date of the London concert. Magic may argue
that this had amounted to frustration of the contract and impossibility for
the performance. Personal incapacity or death where the personality is
significant may frustrate the contract. In the case of Condor v The Baron
Knights, a drummer that supposed to perform 7 nights per week had fell
sick and could only perform 3 nights under the doctor’s advise. The band
dismissed him and he brought a claim for wrongful dismissal. The claim
was held unsuccessful as his condition made it impossible for him to
perform his contractual obligations and the contract was thus frustrated.
Looking at the present case, Magic is a popular and boisterous rock group
made up of 12 musicians, losing one of its members would made it
impossible to perform their original contractual duties, and it was beyond
their control.
Besides that, the commercial purpose of the contract has disappeared as
a result of the intervening events could also render the frustrated. In Krell
v Henry, the court held that the purpose of the man rented the rooms
was to see the coronation process of King Edward VII. Has the purpose
been defeated because of the cancellation of the event, there was
frustration. The purpose of the contract between Magic and Nonentity is
that Magic has to perform on the London stage as a group of 12. The
concert goers bought the ticket also expected to see the group perform
with the full line-up. Hence, the death of the group member had radically
affected the fundamental purpose of the contract and it can be
discharged by frustration.
However, we will need to consider the circumstances when it is not
possible to rely on the frustration doctrine despite the fact that it appears
that a frustratory event has occurred. From Nonentity’s perspective, they
may argue that even the above reasons are valid, the contract still could
not amounts to frustration because frustration must not be self-induced.
As a matter of logic, if one party has caused the event or it is within the
control of that party, then the doctrine will not be applied. In the case of
Super Servant Two, Defendant decided to allocated Super Servant Two to
perform Claimant’s contract while Super Servant One to deal with other
businesses. On its way to perform the contract, SS2 sank. Claimant
argued that it was a breach of contract when defendant argued that it
was a frustration. It was held that there was no frustration because the
actual cause of the non-performance was not the supervening event, the
sinking of SS2 but rather the defendant’s choice to allocate SS1 to
perform another contract. Furthermore, in the case of Davis Contractors,
the court had shown no sign of a willingness to lend their assistance to a
party who is looking for a way out of a bad bargain. Lord Radcliffe stated
that it was not hardship or inconvenience or material loss itself which
calls the principle into play.
On the facts, it was Magic’s lead singer that was photograph ed back
stage consuming illegal drugs and the effect of the drugs eventually
impaired his stage performance negatively before the London concert.
This caused the unpopularity sign of Magic and potential concert goers in
London. They were offended and concerned about the quality of the
group’s performance, tickets were unsaleable thus the depressed
deceased chose to take his own life. It is submitted that the frustration is
self-induced as the unpopularity of the band and death of the deceased
were merely the supervening events derived from the misbehavior of the
lead singer. As the contract between Magic and Nonentity has concluded,
the band members had the responsibilities to behave well, take care of
their image and follow the relevant code of conduct. Instead, the lead
singer has misconducted by taking illegal substance. It can be argued that
it was a breach of contract as the frustration was self-induced because
the actual cause of the non-performance was not the supervening events
but rather the Magic’s misconduct to consume illegal substance. In
essence, the court would have to decide whether has Magic’s
performance become impossible and amounts to a frustration of the
contract or it is actually a breach of contract due to the fact that the
subsequent events were caused by the main factor that the lead singer
took illegal drugs.
In the event that frustration had established, the contract would
terminate immediately without any action from the parties. All future
obligations are no longer enforceable. Parliament, following the case of
Fibrosa case passed the Law Reform (Frustrated Contracts) Act 1943 to
deal with the consequences of frustrating events and to identify the
relevant remedies. S1(2) of the act and the interpretative criteria set out
in Gamerco v ICM outlined that all deposits or pre-payments sum paid
will be recoverable and all sums payable will cease to be payable. If the
payee has incurred any expenses before the contract is discharged, he
has a right to set off a reasonable sum from the sums paid. Looking at
current case facts, Nonentity guaranteed a payable sum to Magic of
£2,000,000 or 85% of the profit of ticket sales, whichever was greater.
Nonentity also provided Magic with an advance of £500,000 before the
contract. Magic on the other hand claim that it has incurred substantial
expenses in travelling to London and preparing for the concert,
supposedly they could retain part of the amount from the advanced
payment in order to compensate the expenses incurred. However, it’s not
clear that how much Magic had spent for their travelling cost, the court
has a broad discretion to determine the amount in order to do justice.
Under s1(3) of the Act, a party is entitled to claim a ‘just sum’ if the other
party has enjoyed a valuable benefit. In this respect the section identifies
that the sum must not exceed the value of the actual benefit gained by
the other party. On the facts, Nonentity has conferred a monetary benefit
upon Magic, but question arises whether has Nonentity received a
valuable benefit as a result of their increase in business brought about by
their increased reputation resulting from their contract with Magic. Goff
LJ in BP v Hunt emphasized that the 1943 Act was more concerned with
preventing unjust enrichment rather than providing for an equitable
apportionment of loss. He gave an example that it would be not as fair if
one party had benefitted from insurance cover. Although Magic had
incurred travelling expenses, they have insurance to cover loss arising
from the cancellation of any concerts. Hence, the court has the discretion
to reject their claim on retaining sum from the advanced payment.
Regarding the issue of valuable benefit, it could be argue that the
increase reputation of Nonentity was not something that come with the
contract. It was an unexpected benefit that are caused by external factors
from the public and no variation in Magic’ obligations so as to amount to
valid consideration. Additionally, the increase in reputation is a benefit
that is hard to be quantified and it was not stated clearly in the facts
given thus it is submitted that Nonentity should be able to withhold the
balance of £1, 5000, 000 and recover the sum paid because prima facie
they had earned nothing out of this contract and they had refunded all
the ticket sold. By granting this decision, both parties appeared to be able
to go back in the position before the contract was made. Again, the
application of the principle is at the discretion of the court.
If the court decided that the contract is discharged due to a breach
caused by Magic, the party who is the victim of the breach may choose to
continue or repudiate the contract as well as sue for damages.
Repudiation will terminate the contract on the spot and both party
renounces their obligations under it. In present case, Nonentity can claim
for what they expected out of the contract as if it was performed until the
end, including the pecuniary losses that was a result for not receiving the
performance bargained for. They did not earn any profit as they were
forced to refund all the London concert tickets, this would satisfied the
first limb of the remoteness test laid down in Hadley v Baxendale where it
would be fair to expect Magic to compensate Nonentity as the loss was a
naturally risen result of Magic’s misbehaviour.
In conclusion, Nonentity should sue Magic for a breach of contract
because the misbehavior of the lead singer which caused the supervening
events and ultimately the frustration of the contract was self-induced by
the band. In regards of the remedies, the repudiation of contract and
possible damages that Nonentity could obtain from Magic under the
breach of contract is certainly more optimal than complying to a
frustration.