The recent High Court decision in The Flying Music Company Limited v Theatre Entertainment SA has highlighted the fact that the defence of frustration will rarely succeed in English law. In June 2010 a tour to Greece of Thriller Live, a West End theatre production based on the music of Michael Jackson, suffered from low tickets sales amidst widespread civil unrest. The production company sued for the unpaid fees but the local promoter argued that the contract had been frustrated by the public disturbances. Whilst sympathising with the defendants’ difficult situation, Mr Martin Griffiths QC, presiding, saw no evidence that the situation in Greece got worse between the point at which the contract was signed in May 2010 and the intended performance dates in June.
In English contract law, a frustrating event is one which so significantly changes the circumstances in which the contractual obligations are to be carried out from those envisaged at the time the contract was agreed that the obligations have become radically different. The judge reminded the court that the effect of frustration is to terminate the contract without fault or recourse on either side. The doctrine is therefore not to be invoked lightly as the certainty and purpose of commercial relations and agreements should not be undermined.
In this case it was held that the frustrating event did not take the situation outside of the reasonable contemplation of the parties: civil unrest in Greece had begun in earnest on 1 May 2010 and the contract was not signed until 21 May. Mr Griffiths QC praised the “heroic” efforts of Theatre Entertainment’s director to meet her company’s obligations and accepted that the protraction of the disturbances may have worsened the consequences of the situation. However, the prolongation of the trouble had always been a possibility and, although disappointing and possibly unexpected, it did not amount to a frustrating event. The conclusion was that, “It is not the doctrine of frustration to re-write contracts with the benefit of hindsight in every case”.
The judge also did not accept that the promoters could escape the personal liability they had accepted by signing a guarantee just before the final performances in Athens. This guarantee promised payments to Flying Music so as to prevent the cancellation of the imminent weekend performances of the show. The agreement clearly imposed personal liability on the directors of Theatre Entertainment but those directors later argued that they only signed under duress. Further, they claimed, the agreement was void for lack of consideration. The judge disagreed on both counts. At the time the guarantee was signed, the claimant was entitled to stop the performances: restraint of its contractual right to cancel was sufficient consideration to support the guarantee. Further, given that the only threat made by the claimant was a warning that they would exercise their contractual rights given the payment arrears, their actions were not improper and did not amount to duress so as to make the guarantee voidable. The defendants’ failures on these two points meant that they also failed in their counterclaim for the repayment of monies transferred under the guarantee, which had been based on an allegation of unjust enrichment.
Although it appears that this event was not insured, contingency underwriters might find the decision of interest to understand how the doctrine of frustration might apply to a contract between act and promoter. Insurers of course rarely get access to the underlying promoter/act contract. It is often said it is irrelevant to underwriters because non-appearance and cancellation policies in the London market commonly exclude any losses “directly or indirectly arising out of, contributed to by, or resulting from…any contractual dispute or breach by the Assured or any Insured Person”.
That assumption, however, underestimates potential recovery avenues available to insurers. For example, it is not uncommon for a promoter to pay an advance to an artist prior to the performance. If the performance does not go ahead because of the non-appearance of the act, the promotor may be well within its rights to ask for reimbursement. Although, for commercial reasons, the promotor may not wish any action to be taken, insurers should nevertheless consider exercising their rights of subrogation.