The Flying Music Company Ltd v Theater Entertainment SA & Ors

A contract is frustrated only where a supervening event makes performance radically different from the contractual undertaking. Frustration is narrow and does not permit the court to reallocate commercial risks because adverse circumstances persist, become more burdensome, or produce disappointing returns. The court must consider the contract, its context, the parties’ objectively ascertainable assumptions and risk allocation, the event, and the consequences of treating the contract as discharged.

Forbearance from exercising a contractual right to stop performance may provide consideration for a guarantee. In an arm’s-length commercial relationship, a threat to exercise a valid contractual right will rarely amount to lawful-act duress. A contractual recharge is recoverable only where it falls within the agreed allocation of responsibility and was reasonably incurred on the other party’s behalf or agreed.

The claimant, a theatrical promoter, contracted with the first defendant to stage a production in Greece. Civil unrest, strikes, demonstrations, road closures and poor ticket sales were already present before the contract was signed. The performances were reduced and payments fell into arrears.

The defendants later signed a written guarantee of the remaining contractual payments. They argued that the contract had been frustrated, that the guarantee lacked consideration or was obtained by duress, and that the claimant had been unjustly enriched. The claimant sought unpaid contractual sums and disputed recharge expenses. The central issues were whether the existing and continuing unrest frustrated the contract, whether the guarantee was enforceable, and what sums were due.

1. Contract frustration. The claim that the contract was frustrated failed. Frustration is confined to cases where, without default, performance becomes radically different from that undertaken. It is not enough that performance becomes more expensive, delayed, onerous or commercially unsuccessful.
2. The court applied the multi-factorial approach identified in The Sea Angel [2007] EWCA Civ 547, considering the contractual terms, context, the parties’ knowledge and objectively ascertainable expectations, the allocation of risk, the nature of the supervening event, and the prospects of performance. Commercial certainty and the parties’ allocation of risk remain important. The doctrine does not rewrite a bargain with hindsight.
3. When the contract was signed, the unrest, violence, demonstrations, road closures and poor ticket sales were already known. The subsequent events did not differ in quality or effect from the existing circumstances. A continuing or prolonged difficulty was not a sufficient change. The parties therefore remained bound by the contract.
4. Guarantee. The guarantee was supported by consideration. The claimant had a subsisting contractual right under clause 4 to stop further performances because of non-payment. Its agreement to forbear from exercising that right in return for the guarantee was sufficient consideration.
5. The guarantee was not voidable for duress. The parties were dealing at arm’s length, the claimant bona fide believed its demand was valid, and the threat was to exercise a lawful contractual right. Applying CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER 714, lawful-act duress in such a commercial context is rare. The pressure felt by the defendants did not make the demand illegitimate.
6. Counterclaim and quantum. The unjust-enrichment counterclaim failed because the claimant was entitled to the money under the contract and guarantee. Judgment was entered for the claimant under the Updated Schedule of Loss, excluding disputed rider expenses. Only €355.66, equivalent to £300, was proved as recoverable rider expenditure. Interest was awarded at the agreed rate from 22 June 2010.

First-instance judgment. No appellate decision is stated in the judgment.