Tips to answer Contract Law

Magic is a popular and boisterous pop group made up of 12 musicians. In February, 2008 it embarked upon a European tour of 25 different cities. Magic contracted with N Productions Ltd, a small and unknown promoter, to stage its London concert. N guaranteed payment to Magic of RM2,000,000/- or 85% of the profit of ticket sales, whichever was greater. N provided Magic with an advance of RM 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. Due to adverse publicity ticket sales in London 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. N 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. Magic have taken insurance, to cover loss arising from the cancellation of any concerts. N 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, N is concerned about the sum it paid Magic and wish to recover the money and to withhold the balance of RM1,5000,000/-. Advise N.

This question is mainly about Frustration of a contract.

This is a bilateral offer by N Productions Ltd. as illustrated in Charles Grenier v Lau Wing Hong. Section 2(a) of Contract sAct 1950 stated when one person signifies to another willingness to do or to abstain from doing anything, he said to make a proposal. In this case, N guaranteed payment to Magic of RM 2000000 or 85% of the profit of ticket sales, whichever was greater to perform in European tour concert.

Magic accepts the offer by receiveing the RM 500000 in advance as deposit. It is illustrated in section 2(b) Contracst Act 1950. When a proposal is accepted, it becomes a promise. The exemplary case is Broadgen v Metropolitan Railway Co. A contract is complete when offer and acceptance took place.

The main issue is about the doctrine of frustration of contract.  The general rule is that if parties undertake to perform a contract they are bound to it. If a subsequent event makes it impossible for a party to perform then he will in breach of contract. Section 57(2) of Contracts Act 1950 defined the frustration is void if promisor could not prevent. Magic’s singer sudden death is considered as an event that could not prevent before the London concert.  The court is very strict in many years ago, the doctrine of frustration is not applicable in that time as illustrated in Paradine v Jane, the war broke out could not stop paying the rental fees. However, in Taylor v Caldwell, the concert hall is destroyed by fire due to neither party’s fault. It is discharged from further performance by frustration. The unexpected event took place by the Magic’s singer is due to neither party fault.

In Davis test in UK, Lord Radcliffe had stated a few points to determine the doctrine of frustration. The elements of frustration consist of unexpected event occur, the event caused a fundamental change to the nature of contractual rights and obligations, neither party will responsible for the event, the event should be such that it was not contemplated by the parties when entering into the contract and unjust to hold the parties to the original position of a contract.  Contracts Act 1950 including the Davis test. The court will see whether the parties have provided for the situation that has arisen, and compare the new situation with the old if no new situation, it must be positively unjust to hold the parties bound. The element of frustration provided in the National Carriers v Panalpina case is that there occurs and unexpected event and cause a fundamental change. Neither party is responsible for the event and it must be unjust to hold the parties to the original contract agreed upon. In both Warsaw and London concert the event is unexpected and caused a radical change.

In the Warsaw case, the singing performance was impaired due to the consuming of illegal drugs by the singers at back stage. The Magic musicians passed away before the London concert is unexpected event. This is neither fault of the party. The burden of frustration falls on N production according to section 66 of Contract Act 1950, it is essential to recover the original position for the innocent party who has suffered loss, thus the refund to the audience is needed unless any exclusion clause is provided before the audience brought the tickets.

The effect of frustration does not render a contract void ab initio in Malaysia law. Consequently obligations accruing before the frustration of the contract remain enforceable. Section 15(2) of Civil Law Act (CLA) 1956 stated that the money payable before the frustrating event is recoverable. In National Land Finance Co-operative Society Ltd v Sharidal Sdn Bhd, the court had relied upon section 15(2) of the Civil Law Act to recover the deposit of the plaintiff due to the frustration event. Therefore N is needed to refund money to the audience in London concert

In conclusion, N is liable to refund money to the audience in London and not responsible to Magic incurred in traveling to London due to his insurance claimed from the company.