Frustration — practice questions

Facts parallel Krell v Henry: Flat hired specifically to view coronation procession — procession cancelled.

Frustration test: Performance not physically impossible (flat still exists) but commercial purpose of contract destroyed — both parties knew procession was the foundation of the contract.

Radically different: Contract becomes something fundamentally different from what was agreed.

Effect: Contract automatically discharged by frustration — neither party at fault.

Money paid: Under Law Reform (Frustrated Contracts) Act 1943 s1(2), H recovers any deposit paid, but V may be able to retain a sum for expenses they fairly incurred.

Conclusion: Contract frustrated — H not liable for the full hire fee; financial consequences are determined by the 1943 Act.

This scenario involves applying the financial remedies under the 1943 Act after a contract is frustrated.

Step 1: Establish Frustration The government ban makes the concert illegal to perform. This is a supervening event that renders performance illegal, thus frustrating the contract. The contract is automatically discharged.

Step 2: Apply s.1(2) - Recovery of Money Paid Under s.1(2) of the Act, money paid before the frustrating event is recoverable. Therefore, Promotions Ltd can in principle recover its £20,000 deposit from Arena Corp.

Step 3: Apply s.1(2) Proviso - Allowance for Expenses The court has discretion to allow the payee (Arena Corp) to retain a portion of the advance payment to cover expenses they incurred for the purpose of the contract. Arena Corp's expenses were £5,000.

Step 4: Calculate the 'Just Sum' The court can allow Arena Corp to retain a 'just sum' not exceeding the expenses incurred (£5,000) or the amount of the advance payment (£20,000), whichever is less. Here, the maximum retention is £5,000. It is likely the court would allow Arena Corp to retain this full amount to cover its costs.

Step 5: Final Calculation

• Initial deposit recoverable by Promotions Ltd: £20,000
• Less amount retained by Arena Corp for expenses: £5,000
• Final amount returned to Promotions Ltd: £15,000

Note on Payer's Expenses: The £10,000 spent by Promotions Ltd on advertising is not recoverable under s.1(2) from Arena Corp, as the Act only allows the payee to deduct expenses from money they received. Promotions Ltd bears this loss. This illustrates the principle from Gamerco SA v ICM where the court considers all circumstances to reach a just outcome, but the Act does not provide a mechanism for the payer to recover their own wasted expenses from the payee.