Gamerco SA v ICM Fair Warning (Agency) Ltd [1995] EWHC 1 (QB) (31 March 1995)

A concert by Guns 'n' Roses in Madrid was cancelled when the stadium was found unsafe due to high alumina cement construction. The court held the contract was frustrated and the promoter could recover its advance payment of US$412,500, with no deduction for the defendant's expenses, applying the Law Reform (Frustrated Contracts) Act 1943.

Facts

The plaintiffs, Gamerco SA, were Spanish concert promoters engaged to promote a Guns ‘n’ Roses concert at the Vincente Calderon Stadium in Madrid on 4th July 1992. The second defendants, Missouri Storm Inc (the corporate entity for Guns ‘n’ Roses), were to perform for a guaranteed fee of US$1.1 million or 90% of net door receipts. The plaintiffs paid US$412,500 on account. On 30th June 1992, engineers discovered the stadium was constructed with high alumina cement and declared it unsafe. On 1st July, the Madrid City Council and central government banned all public activity in the stadium and revoked the permit for the concert. Despite efforts to find an alternative venue, none was suitable for the 44,500 ticket holders, and the concert was cancelled on 3rd July.

Issues

Formation and Terms of the Contract

Whether the contract incorporated terms from a 1991 rider requiring the plaintiffs to obtain all necessary licences and permits, and whether the plaintiffs were in breach when the permit was revoked.

The Defendants’ Obligation

Whether the defendants’ obligation was to perform at the Vincente Calderon Stadium specifically, or merely to be ready, willing and able to perform in Madrid.

Frustration

Whether the contract was frustrated by the prohibition on use of the stadium and revocation of the permit.

Recovery Under the 1943 Act

If frustrated, whether the plaintiffs could recover the advance payment and whether the defendants could retain any amount for expenses under section 1(2) of the Law Reform (Frustrated Contracts) Act 1943.

Judgment

Contract Terms

Mr Justice Garland found that the 1991 rider did not form part of the contract. The contract consisted only of the Agreement, the sheet of projected promoters’ expenses, the addendum, and the outdoor and security riders. Any implied term regarding permits would require only reasonable endeavours, not an absolute obligation.

The Defendants’ Obligation

The court rejected the defendants’ submission that their obligation was merely to be ready and willing to perform in Madrid. The contract specifically required them to appear and perform at the Vincente Calderon Stadium at 22.30 hours for 90 minutes. This became impossible when the stadium was declared unsafe.

Frustration

The court held the contract was clearly frustrated. Applying the test from Davis Contractors Limited v Fareham Urban District Council, the contract became both physically and legally incapable of performance due to events outside either party’s control. Neither party had accepted the risk of the stadium becoming unavailable.

Recovery and Expenses

Under section 1(2) of the Law Reform (Frustrated Contracts) Act 1943, the plaintiffs were entitled to recover US$412,500, and the balance of US$362,500 ceased to be payable. The defendants claimed approximately US$182,000 in expenses but failed to provide adequate evidence. The court made a robust assumption of US$50,000 in expenses but, exercising its discretion under the proviso, allowed no deduction. The court considered that both parties’ expenditure was wholly wasted, the plaintiffs had incurred losses exceeding US$450,000, and justice required no deduction from the plaintiffs’ recovery.

Implications

This case provides significant guidance on the operation of section 1(2) of the Law Reform (Frustrated Contracts) Act 1943, which had received little judicial consideration in the 50 years since its enactment. The court confirmed that in exercising its discretion on whether to allow retention of expenses, there is no rigid rule requiring equal division or total retention. The court must achieve a just result in all the circumstances, considering factors such as the relative losses of both parties, whether any benefit was conferred, and the overall fairness of the outcome. The judgment also confirms that insurance recoveries must be disregarded under section 1(5) unless there was a contractual or statutory obligation to insure.

Verdict: Judgment for the plaintiffs for US$385,708 (net of sums already returned by the first defendant), plus interest at judgment rates, with no set-off for the defendants’ expenses. The counterclaim was dismissed. The plaintiffs were awarded costs of the claim and counterclaim.

Source: Gamerco SA v ICM Fair Warning (Agency) Ltd [1995] EWHC 1 (QB) (31 March 1995)