James is a Partner and Head of the Dispute Resolution team and primarily handles commercial…View Profile View all
The High Court has recently decided that a claim brought by the producer of “Thriller Live”, a Michael Jackson music based show, and a theatrical promoter based in Greece, was not frustrated by civil unrest in that country.
The parties made a contract in May 2010 under which the defendant was to put on “Thriller Live” in both Salonica and Athens in June 2010. During May and June 2010 there were extensive disturbances in Greece because of austerity measures imposed by the Greek government in return for financial support by the EU and the IMF. Instead of 8 performances in Salonica, only 3 took place and in Athens only 16 of the 24 scheduled.
The parties had agreed a fee of €350,000 payable in instalments and the net income from the shows was to be split between the parties. In the event of non-payment of any instalment the claimant would be released from the contract but any amount still due would have to be paid by the defendant. The Greek defendant argued that the contract was frustrated by the civil unrest in Greece and that it did not have to pay the amount claimed under the contract.
The classic definition of frustration is that it, “occurs whenever the law recognises without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.”
Frustration kills the contract and discharges the parties from further liability under it; because of that, the doctrine is not lightly invoked by the courts which keep it within narrow limits.
The Judge said that because frustration radically alters the relationships between the parties the doctrine only applies in exceptional circumstances, “In a commercial contract, which allocates the risk of future events between the parties by agreement, it is particularly important not to pronounce a general absolution from contractual obligations simply on the basis of unexpected events. Most bargains would be struck differently with the benefit of hindsight. It is not the function of the doctrine of frustration to re-write contracts with the benefit of hindsight in every case. To do so, even on the basis of some assessment of a just and reasonable result, would be to undermine the certainty and purpose of commercial relations and agreements, which are commonly doing business in uncertain environments without knowing which side will benefit most from the deal, and which side may come to regret it. On the other hand, when events entirely overtake the deal, the doctrine of frustration has its place.”
Having considered the evidence, the Judge concluded that the situation had not deteriorated to a point at which performance of the contract had become completely different from what had been envisaged when the contract was signed. The evidence was that there was already unrest and its duration was uncertain. There had been road closures because of demonstrations and violence had occurred. Negotiators from the EU had arrived and there had been violent eruptions in Salonica and Athens.
The Judge was of the view that because there had been civil unrest before the contract was signed, both parties knew enough about the risks posed to the success of the production for it to be wrong, with the benefit of hindsight, to release the defendant from the contract on the basis of frustration. The Judge decided that this was not a case where the doctrine should be applied so as, “to give effect to the demands of justice, to achieve a just and reasonable result, to do what is reasonable and fair, as an expedient to escape from injustice where such would result from enforcement of a contract in its literal terms after a significant change in circumstances.”
In a further argument about a personal guarantee the directors of the defendant argued that they had been forced to sign the guarantee part way through the aborted run and it had been obtained by duress. The Judge found that at the time the guarantee was signed, the defendant was in arrears with the installments due to the claimant and the claimant was entitled to exercise its contractual rights to “pull” the show. In the circumstances, the requirement for the personal guarantee to allow the show to continue was not duress which affected its validity.