MR. JUSTICE GARLAND: The plaintiffs, a Spanish corporation, are pop concert promoters. The second defendants, Missouri Storm Incorporated, are the corporate persona of the group Guns 'n' Roses. The group proposed to tour Europe from mid-May until early July of 1992. There would be some 24 open air concerts in 12 countries. The venues were for the most part sports stadia such as Wembley, the Olympic Stadium in Berlin and the Feijenoord Stadium in Rotterdam. The last three concerts were to be in Lisbon, Madrid and another venue in Spain, preferably Barcelona. The agency which undertook the organisation of the tour was the first defendant, I.C.M. Fair Warning Agency Limited, the moving spirit of which was Mr. John Jackson. His task was to select promoters in the countries where the group was to perform and to negotiate contracts on its behalf. The plaintiff corporation was the chosen promoter in Spain. The director most actively involved was Guy Mercader, who gave evidence. Another director who gave evidence was Francisco Martinez. The plaintiffs' offices are in Barcelona, but they promote pop concerts throughout Spain. They make use of service companies locally: in this case Osbon S.A., which is based in Madrid. The local service company would be responsible for obtaining necessary permits and supplying labour to prepare the venue.
The second defendants took with them on tour specialist contractors for sound, video, lighting, catering and transport together with members of their own staff. Apart from the six members group there were 20 "band touring personnel" and 16 "crew touring personnel", of whom approximately 30 were either staff or self-employed under a corporate identity. The transport required was a Boeing 727 chartered from M.G.M. Grand Air for 53 days, 10 articulated trucks, two generator trucks, four 12-berth sleeper coaches and one 14-berth, all hired with drivers for 53 days.
In the event, the tour consisted of 20 concerts in the 12 countries with a promoter in each country. So far as these proceedings are concerned, the plaintiffs were to promote a concert on 4th July in Madrid, guaranteeing the second defendants US$1.1 million or 90% of the net door receipts, whichever was the greater. The plaintiffs were responsible for erecting the stage (through Belgiam contractors, Stageco), the roof and generally preparing the venue. The group's previous engagement was in Lisbon on 2nd July. The original itinerary had been 27th June: Turin; 28th June: Rome; 2nd July. Lisbon. No concert was arranged in Rome, but on 1st July there was an additional concert in Seville.
These proceedings have arisen because the Madrid concert was to take place in the Vincente Calderon Stadium (the home of Atletico Madrid) but on 3 0th June engineers reported that the stadium was constructed with high alumina cement ("H.A.C.") and that it could not safely be used until further investigations had been carried out. On 1st July both the Madrid City Council and the appropriate arm of central government banned the use of the stadium. The permit to hold the event was revoked. The parties became aware of these events early on 2nd July.
Attempts were made to find an alternative venue. The other large stadium the Bernabeu (home of Real Madrid) was undergoing repairs. The Rockodromo had been closed for two years and was in no fit state to be used. The owners of the Jarama motor racing circuit would not allow it to be used; the Police objected to the use of the racecourse, and other football grounds were too small to accommodate the holders of the 44,500 tickets that had been sold. On 3rd July there were press releases and public announcements cancelling the concert. The plaintiffs had paid the second defendants U.S.$412,500 on account. There was a balance of $362,500 - both sums net of tax. In fact the plaintiffs had arranged for the balance to be paid on 30th June, but due to an error by the bank this had not been effected by the time of the cancellation when the plaintiffs wanted their money back. There is an issue of fact whether on 3rd July Mr. Goldstein of the second defendants had told Guy Mercader that the defendants would pay back the $412,500. Both parties had incurred expenses in preparation for the concert.
The issues
1. Did the contract between the plaintiffs and the second defendant incorporate the terms set out in the rider, the outdoor and security riders and, in particular, a term to the effect that the plaintiffs should obtain all licences or other approvals required to be obtained from any public authority to enable the concert to be held at the Vincente Calderon Stadium in Madrid on 4th July 1992? If there was no express term was there an implied term to similar effect? Were the plaintiffs in breach when the permit was revoked on 1st July?
2. Was the defendants' obligation to give a performance at the Vincente Calderon Stadium or only to be ready, willing and able to perform in Madrid on 4th July, though not necessarily at the Vincente Calderon Stadium as submitted on their behalf, although in his faxed letter of 3rd July, Mr. Jackson expressed it as "ready, willing and able to perform in Madrid at the Vincente Calderon Stadium on Saturday, 4th July 1992 as contracted"?
3. Was the contract frustrated by the actions of the public authorities in Madrid in prohibiting all public activity in the Stadium and revoking the authorisation for the concert to proceed?
F
4. If the contract was frustrated:
(a) are the plaintiffs entitled to recover U.S.$412,500 paid by the plaintiffs to the second defendant?
(b) what expenses, if any, did the second defendant incur before the time of discharge in or for the purpose of the performance of the contract?
(c) is the second defendant entitled to set off all or any part of any such expenses against the plaintiffs' claim under section 1(2) of the Law Reform (Frustrated Contracts) Act 1943?
5. If the failure to hold the concert was a breach of contract on the part of the plaintiffs, the second defendant is entitled to the sum of $362,500 but what loss of profits has the second defendant suffered as a result of lost sales and merchandise?
Formation of the contract
It is not, in my view, necessary to set out the entire genesis of the contract or the matrix of facts surrounding its formation. The first approaches were made by Mr. Jackson in November 1991 to the plaintiffs and to Creative Entertainment Group S.A., through Pino Sagliocco, who he played off against one another. At the end of March 1992 the plaintiffs and Mr. Jackson agreed in principle to put on two concerts in Madrid and Barcelona with a guarantee of U.S.$1.1 million or 90% of the net takings for each, 50% to be remitted immediately. At this time Mr. Jackson had sent the rider for 1991 (to which I shall refer as "the 1991 rider"). It is a mixture of extensive contractual provisions including the term relating to "permits, licences, certificates" relied on by the second defendants; determination and cancellation provisions, a liquidated damages clause, and minutely detailed provisions for furnishing dressing rooms, meal times and menus, and Axel Rose's personal requirements.
On 11th April 1992, although no contract had been entered into, the U.S.$412,500 was transferred. Two days later the plaintiffs were informed that the board of the Circuit de Catalunya were not prepared to make it available for a concert. The consequences were serious because 1992 was the year of the Barcelona Olympics and alternatives were not available.
There was posturing by Mr. Jackson and the reinvolvement of Pino Sagliocco, who was hoping to put on concerts in Seville and at the Real Madrid Bernabeu Stadium. But on 13th April Mr. Jackson sent the plaintiffs and all other promoters the outdoor rider, a much simpler document than the March rider. On 21st April the hire of the Vincente Calderon Stadium was confirmed, although the actual contract was not entered into until 16th June .
On 22nd April there was a promoters meeting in London at the Conrad Hotel. According to Mr. Jackson Guy Mercader arrived alone, unaccompanied by production staff, and was cold-shouldered because there were still disputes about Barcelona and the televising of the Paris concert on 6th June which could adversely affect ticket sales in Spain. On 24th April Pino Sagliocco made an offer for concerts in Seville and the Bernabeu Stadium. Between then and 14th May Mr. Jackson was playing off Sagliocco against the plaintiffs and trying to hold the plaintiffs to the Barcelona venue until solicitors became involved on both sides. On 11th May Mr. Jackson sent the plaintiffs the security rider, and on the 14th faxed the contract which was actually dated 1st May under cover of a letter saying:
"Please find attached the contract for 4th July in Madrid. Please sign and return this copy together with all relevant pages. The original will be despatched to you by normal post today."
The faxed document was returned on 16th May. On 18th May Mr. Jackson asked for the original hard copy, which should have had a rider attached, to be returned. The plaintiffs had not received it. On 28th May, Osbon applied for the necessary permit to hold the concert. The practice apparently is that the authorities do not issue the actual permit until a few days before the event. There were no unusual difficulties in pursuing the application. The permit was issued on 30th June but revoked the following day.
Nothing turns on the non-receipt of the hard copy of the contract. Mr. Jackson asserted that, although the contract refers to the attached rider, he in fact sent all three - the 1991 rider, the outdoor and security riders. However, he agreed, as his letter covering the outdoor rider makes clear, that it superseded the 1991 rider, which was for 1991, applied to indoor venues, and contained provisions wholly inconsistent with the outdoor rider. The contract entered into therefore consisted of the single page "Agreement Number 12502" , the sheet of projected promoters' expenses, the addendum and the two riders. Were it necessary to make a finding of fact I would find that Mr. Jackson did not attach the 1991 rider. It would have been pointless to do so and, in any event, I regarded his evidence on this point as unreliable.
The construction of the contract
It follows from my findings as to the documents comprising the contract that the term in the 1991 rider relating to "Permits, Licences, Certificates", did not form part of it. The plaintiffs accept that there must be an implied term to give the contract commercial efficacy that the promoter would obtain such approvals permits, licences, etc. as might be required to enable the contract to be performed. Mr. Flint submitted that such an implication would be "to use all reasonable endeavours". It would not be necessary to require absolute obligation, e.g., "to obtain and at all times thereafter to ensure that there were in force all such approvals, permits, licences, and certificates, as may at any time be required etc" . In my view the proper implication would be to use all reasonable endeavours. The outdoor and security riders are not relevant to any issue in the case.
The defendant's obligation
The contract provides:-
"The Contractor engages the Artist and the Artist accepts the engagement to appear at the venue(s) on the terms set out below. The ARTIST agrees to appear at 1
performance(s) at a salary of U.S. $1.1 million .... or 90% of the net door receipts whichever is the greater".
Clause 1 provides:
"The Artist will not be required to play for more than a total of 1 x 90 minutes".
Clause 5 provides:
"On stage First Act 18.30 hours. Guns 'n' Roses 22.30 hours."
Below clause 9 (which deals with payment) is the schedule:
"Date of Performance: Saturday 4th July 1992. Venue Vincente Calderon, Madrid.
Capacity: 70,000" .
Mr. Sewell submitted, as has already been stated, the group's obligation was simply to be ready, willing and able to perform in Madrid. Perhaps his secondary position was as expressed in Mr. Jackson's letter by adding "at the Vincente Calderon Stadium". But the thrust of his argument was that so long as the group was prepared to perform in Madrid there was no frustration and the plaintiffs were in breach of an express or an implied term to obtain a permit which remained valid for the day of the event.
I do not consider these submissions tenable. The contract was to appear and actually to give a performance at the Vincente Calderon starting at 22.30 lasting 90 minutes. This could not be done, not because a permit was revoked but because the stadium had been found to be unsafe. In any event it was impossible for the defendants to perform their side of the bargain; they could not appear in the stadium any more than the plaintiffs could perform their obligations to erect the stage, the roof and generally to prepare the venue.
A corollary of Mr. Sewell's argument was that the plaintiffs had agreed to take all the commercial risks, whereas the defendants would collect U.S.$1.1 million even if very few tickets were sold. If the next step was that they had accepted the risk of the stadium becoming unavailable it is not a permissible step. The plaintiffs did not either expressly, or as a matter of construction, accept the risk of a concert not taking place due to events outside their control and not contemplated by either party. The contract became both physically and legally incapable of performance: there was no force majeure or catastrophe clause, nor any provisions similar to those in some engineering contracts allocating the risks should the work become physically or legally impossible of performance. The parties made their own arrangements about insurance but there were no contractual obligations to insure -familiar enough provisions in many contracts.
The law
It is convenient to take as a statement of the law passages from the judgment of the present Master of the Rolls in The "Super Servant Two" [1990] 1 Lloyd's Rep 1 at p.8 and 9:
"The classical statement of the modern law is that of Lord Ratcliffe in Davis Contractors Limited v. Fareham Urban District Council [1956] AC 696 at 729.
"'... frustration occurs whenever the law recognises that 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. Non haec in foedera veni. It was not this that I promised to do.'
As Lord Reid observed in the same case (at p.721) :
"'... there is no need to consider what the parties thought or how they or reasonable men in their shoes would have dealt with the new situation if they had foreseen it. The question is whether the contract which they did make is, on its true construction, wide enough to apply to the new situation: if it is not, then it is at an end'.
"Certain propositions, established by the highest authority, are not open to question:
"1. The doctrine of frustration was evolved to mitigate the rigour of the common law's insistence on literal performance of absolute promises. The object of the doctrine was 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.
"2. Since the effect of frustration is to kill the contract and to discharge the parties from further liability under it, the doctrine is not to be lightly invoked, must be kept within very narrow limits and ought not to be extended.
"3. Frustration brings the contract to an end forthwith, without more and automatically.
"4. The essence of frustration is that it should not be due to the act or election of the party seeking to rely on it.
"5. A frustrating event must take place without blame or fault on the side of the party seeking to rely on it. "
There is extensive quotation of authority which it is not necessary to reproduce in this judgment.
Mr. Sewell took me to a number of well-known authorities. Taylor v. Caldwell [1863] 3 B. & S. 826) he submitted might be applicable between the plaintiffs and the owners of the stadium, the dangerous state being arguably analogous to destruction by fire, but not as between the plaintiffs and the defendants. The basis for his submission came back to his formulation of the defendant's obligation which was simply to be willing to perform in Madrid. Neither of the Coronation cases are, in my view, helpful - Krell v. Henry [1903] 2 KB 740 and Herne Bay Steam Boat Company v. Hutton [1902] 2 K.B. 683 - these were "foundation of the contract" cases turning on their particular facts, as was London & Northern Estates Company v. Schlesinger [1916] 1 K.B. 20.
Mr. Sewell placed reliance on a passage from Lord Wright in Maritime National Fish Limited v Ocean Trawlers Limited [1935] A.C 325 (P.C.) at p.529. This was an "election of the plaintiff" case where the charterer of five trawlers had obtained the necessary licences for three, which he nominated, and then claimed that the charter in respect of one of the others had been frustrated. It was perhaps surprising that the case reached the Privy Council but at p.529 Lord Wright, referring to criticism of Krell v. Henry said this:
"The authority is certainly not one to be extended: it is particularly difficult to apply where, as in the present case, the possibility of the event relied on as constituting a frustration of the adventure (here the failure to obtain a licence) was known to both parties when the contract was made, but the contract entered into was absolute in terms so far as concerned that known possibility. It may be asked whether in such cases there is any reason to throw the loss on those who have undertaken to place the thing or service for which the contract provides at the other party's disposal and are able and willing to do so."
He then goes on to comment that where the parties might have inserted an express condition dealing with the eventuality that has arisen, the court should be very reluctant to interfere. I do not think that this citation of authorities assists Mr. Sewell: in fact the service or thing which the contract provided was the use of the stadium in which the defendants had undertaken to perform. But, again, Mr. Sewell was returning to his "able and willing" argument.
I am in no doubt whatsoever that this contract was frustrated when, due to the discovery of H.A.C. in the construction of the stadium, its use was banned pending further investigations and the permit for its use was revoked.
Subsequent events
Some time was taken up examining events occurring after both parties had become aware of the prohibition and revocation of the permit. Save and insofar as these events cast any light on the expenses issue or the credibility of witnesses they are irrelevant, since the contract had by then been discharged, and there is no claim on a quantum meruit for services rendered otherwise than under the contract while it was still in existence, and no question of mitigation can arise. Had an alternative venue been found there would have been a variation of the contract and no doubt disputes about the additional costs of dismantling and re-erecting the stage and roof.
I refer to the alleged conversation between Guy Mercader and Mr. Goldstein on 3rd July. I do not consider it necessary to make it an express finding. Mr. Flint suggested that if Mr. Goldstein did indeed say that the plaintiffs would get their money back this would be something I could take into account on sub-section 2 of section 1 of the Law Reform (Frustrated Contracts) Act 1943 (to which I will refer as the "1943 Act") when exercising my discretion to consider what is just in all the circumstances. There is no question of estoppel or change of position. Within a very short time the plaintiffs were demanding their money back and the defendants calling for payment of the balance. I do not regard as appropriate material for the exercise of discretion what may have been an unguarded remark at a time of great anxiety. I make no finding and place no reliance on what may or may not have been said.
Recovery and expenses
The contract, having been discharged by frustration, the plaintiffs were entitled to recover from the second defendants the advance payment of U.S.$412,500 (-less the sum returned by the first defendants) by virtue of section 1(2) of the 1943 Act which is in the following terms:
"All sums paid or payable to any party in pursuance of a contract before the time when the parties were so discharged (in this Act referred to as 'the time of discharge') shall, in the case of sums so paid, be recoverable from him as money received by him for the use of the party by whom the sums were paid, and, in the case of sums so payable, cease to be payable."
In addition the balance net of tax, $362,500 ceases to be payable.
The issue which I have to decide is whether and, if so, to what extent, the defendants can set off against the U.S.$412,500 expenses incurred before the time of discharge in or for the purpose of the performance of the contract. It is perhaps surprising that over a period of 50 years there is no reported case of the operation of section 1(2), although it was considered obiter by Robert Goff J. (as he then was) in B. P. Exploration Company (Libya) v. Hunt (No.2) [1979] 1. W.L.R. 783 at p.800. The section has, of course, received the attention of textbook writers, most recently that of Professor Treitel in "Frustration and Force Majeure". The proviso to sub-section (2 has to be read with sub-sections (3) to (6). It is accepted that sub-sections (3) and (6) have no application in the present case. I therefore turn to the proviso and sub-sections (4) and (5). The proviso:
"Provided that, if the party to whom the sums were so paid or payable incurred expenses before the time of discharge in, or for the purpose of, the performance of the contract, the court may, if it considers it just so to do, having regard to all the circumstances of the case, allow him to retain or, as the case may be, recover the whole or any part of the sums so paid or payable, not being an amount in excess of the expenses so incurred. ...
"(4) In estimating, for the purposes of the foregoing provisions of this section, the amount of any expenses incurred by any parties to the contract, the court may, without prejudice to the generality of the said provisions, include such sum as appears to be reasonable in respect of overhead expenses and in respect of any work or services performed personally by the said party,
"(5). In considering whether any sum ought to be recovered or retained under the foregoing provisions of this section by any party to the contract, the court shall not take into account any sums which have, by reason of the circumstances giving rise to the frustration of the contract, become payable to that party under any contract of insurance unless there was an obligation to insure imposed by an express term of the frustrated contract or by or under any enactment."
So far as sub-section (5) is concerned, both parties had insured against cancellation and had made recoveries under their respective policies. The sub-section is mandatory:
"The court shall not take into account any sums which have become payable."
I therefore ignore the insurance recoveries which were not made under any obligation to insure imposed by an express term of the contract, or by or under any enactment.
I therefore turn to the proviso in sub-section (4). The defendants' claim for expenses was set out as a schedule to their defence and counterclaim. Mr. Michael Oppenheim, who became the second defendant's business manager/accountant in October 1992, gave evidence in support of the claim. He had no personal knowledge of events and regrettably discovery was far from complete so that in many instances he had to say, "I know that the account was paid because I have seen the ledger". But there were areas of doubt as to whether expenses were incurred or the purpose for which they were incurred. This is a case where expert evidence from an independent accountant would have assisted the court- The claim was slightly modified as a result of Mr. Oppenheim's evidence and concessions by counsel. I reproduced a schedule with the alterations incorporated. The claim is just under U.S.$182,000 after adjustment of the insurance item.
SCHEDULE OF EXPENSES REFERRED TO IN
PARAGRAPH 9(1) OF THE AMENDED
DEFENCE AND COUNTERCLAIM
| LABOUR |
|
|
|
| Salaries |
(Schedule 1) |
$15,010.00 |
|
| Payroll Taxes |
(25% of salaries) |
3,752.50 |
|
| Jerry Gendron Mgmt Inc |
: ($3,000/wk x 2/7) |
857.15 |
|
| Clutch Management Inc |
($l,500/wk x 2/7) |
428.58 |
|
| Phil Ealy & Associates |
($3,075/wk x 2/7) |
878.58 |
|
| Per Diem |
(S50/day x 47 x 2 days) |
4,700.00 |
25,626.81 |
| PRODUCTION |
|
|
|
| Showpower |
5,714.28 |
|
|
| Nocturne |
11,142.86 |
|
|
| Electrotec |
9,857.14 |
|
|
| Varilites |
5.120.64 |
31,834.92 |
31,834.92 |
| ACCOMMODATIONS |
|
|
|
| Hotel Meridian - Lisbon |
20,921.29 |
|
|
| Hotel Meridian - Lisbon |
293.00 |
|
|
| Hotel Euro Building - Madrid |
28,672.76 |
|
|
| Holiday Inn Crown Plaza |
122.54 |
50,009.59 |
50,009.59 |
| TRAVEL |
|
|
|
| * MGM Grand Air |
17,735.84 |
|
|
| Transam Trucking |
15,107.18 |
|
|
| Wharfedale Coaches |
6,736.80 |
39,579.82 |
39,579.82 |
| INSURANCE |
|
|
|
| Liability Insurance (per show) |
6,750.00 |
|
|
| Workers* Compensation |
|
|
|
| Insurance |
634.50 |
|
|
| Non Appearance Insurance (3.5% of gross concert |
|
|
|
| income) |
27,500.00 |
34,884.50 |
34,884.50 |
| TOTAL EXPENSES |
|
US$ 181,935.64 |
US$ 181,935.64 |
*This was amount paid to charter company to be on standby
The reasons why expert analysis would have been helpful are briefly as follows:
1.
(a) Some of the salaries in Schedule 1 appear to relate to persons other than those included in the lists "Band Touring Personnel" and "Crew Touring Personnel" but may be admissible in a calculation of overheads under subsection (4) . "Labour costs" includes three of the group but not Axel Rose, Slash and Duff McKagen, and includes the more exotic members of the retinue, the Witch Doctor and Masseuse.
(b) The "per diem" is a cash payment of dollars per day to 4 7 of the total retinue. There was virtually no evidence at all of those payments.
These expenses had been calculated at two-sevenths of weekly rates on the basis that they were "incurred" in respect of 4th and 5th July, as have the hotel bills under "ACCOMMODATIONS".
2. "PRODUCTION" Refers to four contractors engaged for the whole tour, as were M.G.M. Grand Air, Transam Trucking (who supplied the articulated trucks and generator trucks) and Wharfedale Coaches (who provided the sleeper coaches). The defendants have taken two fifty-thirds of the total cost, the tour lasting 53 days. The plaintiffs' argument is that the labour costs were not incurred specifically for the concert in Madrid but for the whole European tour. There was a performance in Lisbon on the 2nd July. Costs would have been incurred on 3rd July. Mr. Oppenheim's evidence was that some staff would have been retained for the next tour, possibly on half pay, and some laid off. All wage slips produced are for the period 1st to 15th July which suggests that the staff concerned would have been paid, Madrid concert or no.
Very similar considerations apply to the Production and Travel costs. To what extent they can be said to be have been incurred "in or for the purpose of" the performance of this contract is a very open question on which I would have welcomed a great deal more assistance than the defendants were prepared to offer.
So far as "ACCOMMODATIONS" are concerned, the plaintiffs say that these cannot have been "incurred" before 2nd July as hotel costs are conventionally incurred from day to day. Clearly, with such a large retinue advance booking was essential, but no evidence was given that these costs were incurred as a result of reservations which could not be cancelled for 4th and 5th July, and they were general living expenses which would (like the labour costs) have been incurred in any event.
The plaintiffs' further submission is that the contract was, as a matter of law, discharged on 2nd July. The defendants therefore have to demonstrate that any claimed expense was incurred before that date. They have not sought to address the point and have based their claims on expenses arising on 4th and 5th July.
Had this been a claim for special damage I would have found myself in great difficulty for want of both primary and expert evidence. I find it impossible to determine an accurate figure. The best I can do is to accept that the defendants did incur some expenses, but the extent of them is wholly unproven except in relation to liability and cancellation insurances which, at the end of the day, were not seriously in contention. It is the case of doing the best I can, but on the evidence available to me I arrive at a figure of U.S.$50,000.
The approach to the proviso
The following have to be established:
1. That the defendants incurred expenses paid or payable;
2. before the discharge of the contract on 2nd July;
3. in performance of the contract (which is not applicable); or
4. for the purposes of the performance of the contract; and
5. that it is just in all the circumstances to allow them to retain the whole or any part of the sums so paid or payable.
The onus of establishing these matters must lie on the defendant. It is, in the broad sense, his case to be made out and I am assisted by the Victorian case of Lobb v. Vasey Housing Auxiliary [1963] Vict. L.R. 239 under the corresponding Victoria Act of 1959 which is in very similar terms to the 1943 Act.
I have already dealt with 1, 2 and 4 so far as the evidence allows. I turn to 5. I take the following matters into consideration.
(a) My assumption that the relevant expenses of U.S.$50,000 was undisputed.
(b) It was undisputed that the plaintiffs incurred expenses in excess of 52 million pesetas (approximately £285,000 or U.S.$450,000).
(c) Neither party conferred any benefit on the other or on a third party so that sub-sections (3) and (6) did not apply.
(d) The plaintiffs' expenditure was wholly wasted, as was the defendant's.
(e) The plaintiffs were concerned with one contract only. The defendants were concerned with the last of 20 similar engagements, neither party being left with any residual benefit or advantage.
(f) As already stated, I entirely ignore any insurance recoveries in accordance with sub-section 5.
Various views have been advanced as to how the court should exercise its discretion and these can be categorised as follows:
1. Total retention. This view was advanced by the Law Revision Committee in 193 9 (Cmnd 6009) on the questionable ground:
"that it is reasonable to assume that in stipulating for pre-payment the payee intended to protect himself from loss under the contract".
As the editor of Chitty (Mr. E. G. McKendrick) comments
"He probably intends to protect himself against the possibility of the other party's insolvency or default in payment".
To this, one can add:
"and secure his own cash flow".
In B.P. Exploration v. Hunt (No.2) [1979] 1 W.L.R. 783 Robert Goff J. (as he then was) considered the principle of recovery under subsections (2) and (3). At p.799 G he said:
"The Act is not designed to do certain things:
"(i) It is not designed to apportion the loss between the parties. There is no general power under either section 1 (2) or 1(3) to make any allowance for expenses incurred by the plaintiff (except, under the proviso to section 1(2), to enable him to enforce pro tanto payment of a sum payable but unpaid for frustration); and expenses incurred by the defendant are only relevant insofar as they go to reduce the net benefit obtained by him and thereby limit any award to the plaintiff .
"(ii) It is not concerned to put the parties in the position in which they would have been if the contract had not been performed.
"(iii) It is not concerned to restore the parties to the position they were in before the contract was made.
A remedy designed to prevent unjust enrichment may not achieve that result; for expenditure may be incurred by either party under the contract which confers no benefit on the other, and in respect of which no remedy is available under the Act."
He then turned to sub-section 2 of section 1 and said:
"There is no discretion in the court in respect of a claim under section 1(2) except in respect of the allowance for expenses; subject to such an allowance -.. the plaintiff is entitled to repayment of the money he has paid. The allowance for expenses is probably best rationalised as a statutory recognition of the defence of change of position. True, the expenses need not have been incurred by reason of the plaintiff's payments; but they must have been incurred in, or for the purpose of, the performance of the contract under which the plaintiff's payments have been made, and for that reason it is just that they should be brought into account."
I do not derive any specific assistance from B. P. Exploration. There was no question of any change of position as a result of the plaintiffs' advance payment.
2 . Equal Division
This was discussed by Professor Treitel at paras.15-059 and 15-060 of his book. There is some attraction in splitting the loss but what if the losses are very unequal? Professor Treitel considers statutory provisions in Canada and Australia but makes the point that unequal division is unnecessarily rigid and was rejected by the Law Revision Commission in the 1939 report to which reference has already been made. The parties may, he suggests, have had unequal means of providing against the loss by insurers, but he appears to overlook subsection. (5) . It may well be that one party's expenses are entirely thrown away while the other is left with some realisable or otherwise usable benefit or advantage. Their losses may, as in the present case, be very unequal. Professor Treitel therefore favours the third view.
3. Broad Discretion
It is self-evident that any rigid rule is liable to produce injustice. The words: "if it considers it just so to do in all the circumstances of the case" clearly confer a very broad discretion. Obviously the court must not take into account anything which is not "a circumstance of the case" or fail to take into account anything that is and then exercise its discretion rationally. I see no indication in the Act, the authorities, or the relevant literature that the court is obliged to incline either towards total retention or equal division. Its task is to do justice in a situation which the parties are neither contemplated or provided for, and to mitigate the possible harshness of allowing all loss to lie where it has fallen.
I have not found my task easy. As I have made clear, I would have welcomed assistance on the true measure of the defendants' loss and the proper treatment of overhead and nonspecific expenditure. Because the defendants have plainly suffered some loss, I have made a robust assumption. In all the circumstances, and having particular regard to the plaintiffs' loss, I consider that justice is done by making no deduction under the proviso.
Merchandise
On the basis of my finding of frustration this item of the counterclaim fails. However, in case the matter goes further I will deal with it.
The claim is for loss of sales of franchised goods, T-shirts, souvenirs, etc. for a substantial royalty. Mr. Oppenheim produced a simple calculation, which he had not made himself, for "low", "medium" and "high" sales assuming an attendance of 44,500. "Low" sales are based on a per head expenditure of U.S.$2.56; medium: U.S.$2.94; and high: U.S.$3.32. These figures were provided to him by the holder of the franchise, Brokum, but there was no evidence from Brokum as to the data upon which the figures were based or the assumptions underlying the estimates. There was no relevant discovery of any material at which I could have looked under the Civil Evidence Act and from which I might have drawn inferences. The defendants undoubtedly suffered some loss but they have wholly failed to quantify it and, on the evidence available to me, I would decline to pluck a figure from the air.
I therefore allow the plaintiffs' claim for U.S.$412,50C without set-off and dismiss the counterclaim. The plaintiffs will be entitled to interest, and I ask if the declaration sought in the statement of claim is still sought in view of the finding that I have made.
MR. FLINT: I do not seek the declaration. I invite your Lordship to enter judgment for the net sum of U.S.$385,708, that gives credit for the sum returned by the first defendant, at $385,708.
MR. JUSTICE GARLAND: Yes.
MR. FLINT: As to interest, first of all as to the period, in my submission the sum becomes repayable on discharge of the contract on frustration on 2nd July 1992, so interest should run from 2nd July until your Lordship's judgment of today. As to the rent, the interest on judgment is now at 8% per year, but that has applied since 1st April 1993. I would invite your Lordship to award interest at the judgment rates from July 1992 which would be at 15% until 1st April 1993, and then 8% from 1st April 1993 to date. I am afraid we have not produced calculations of that, but I am sure they could be agreed if your Lordship makes an order in that form.
MR. JUSTICE GARLAND: Do you have anything to say about that, Mr. Sewell?
MR. SEWELL: Just this. Your Lordship may recall that your Lordship saw an affidavit from Miss Kanari. That was in connection with an application to prevent the funds being put out of the jurisdiction. As a result of that a sum of money was in fact paid into a special client account for those instructing me. My Lord, it necessarily was a dollar account. It may not be necessary for your Lordship to see it, I can probably tell your Lordship, the actual interest which has been earned on that account since the payment in (which was on 11th September 1992) -- if I can take the matter shortly, the overall interest which has been earned on that account attributable to the $385,708 gives an overall rate of 9.42% and put in monetary terms that is slightly less than £34,000. That is the amount which has actually been earned. In my submission that would be the appropriate award of interest.
The reason I say that is that of course it was the plaintiffs who required the funds to remain within the jurisdiction. That meant them being placed on a dollar account, because otherwise of course the defendants would be taking the risk of rate changes between the pound and the dollar, therefore it was entirely reasonable that interest would be earned on that account at what one has to accept is far lower than would have probably been earned on an ordinary sterling account. So those would be my submissions.
MR. JUSTICE GARLAND: Yes, what do you say?
MR. FLINT: My Lord, in my submission the proper test is the rate at which the plaintiffs would have had to borrow or be required to pay to borrow in the course of their business. The plaintiffs have not required the defendant to make any particular use of the money. A Mareva injunction was obtained. In my submission a plaintiff is entitled to recover his debt which was due in July 1992 with a proper rate of interest irrespective of what the defendant has earned on it. In the event it does not appeal that there is likely to be a very great difference between the judgment rates which I have given your Lordship, so that for the last two years at 8%, the first nine months at 15%, and it appears at 9.42% overall, was earned, so there may not be a great deal in it. In my submission the plaintiffs are entitled to have his judgment plus interest assessed by the court, and insofar as that is not fully covered by the use the defendant has made of the money then the defendant should make that up.
MR. SEWELL: My Lord, I may have misled my learned friend. When I said that an overall rate of 9.42%, what I should have said is that the total interest which has been earned is equivalent to 9.42%. My Lord, that is not per annum, that is in totality.
MR. JUSTICE GARLAND: Ah! That is different.
MR. SEWELL: The rates have gone from about 2½% to very latterly 6%. So it is very much lower figure than the judgment rate where the composite overall is in fact 27.14% according to my calculations. So it is a quite considerable difference.
MR. JUSTICE GARLAND: Mr. Flint's submission really is the accepted situation, is it not? It is the cost to the plaintiff of being kept out of his money, and not what has happened to the money in the interim that is the juridical basis of an award of interest. It is damages for the loss of the use of your money. Not what somebody else has done with it.
MR. SEWELL: My Lord, I have made my submissions and I think all I can add to it is simply to say this of course, the plaintiffs are in fact a Spanish company and simply one does not know what the interest rate would have been in Spain, for example, throughout this period assuming that the money had been returned to them.
MR. JUSTICE GARLAND: Being members of the EEC now these things do not differ very widely because there is a free money market. Mr. Flint is right. Interest is, in plain terms damages, for being kept out of your money. He is entitled to the conventional rate. What about the question of costs?
MR. FLINT: I invite your Lordship to award the plaintiffs the costs of the claim and counterclaim.
MR. JUSTICE GARLAND: Mr. Sewell, do you have anything to say?
MR. SEWELL: My Lord, I cannot resist that.
MR. JUSTICE GARLAND: That must follow, Mr. Flint, you may have your costs of the claim and counterclaim.
MR. FLINT: I am much obliged.
