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

Promoters Gamerco sued to recover a $412,500 advance paid for a Guns N' Roses concert. The contract was frustrated when authorities declared the venue unsafe. The court ordered the full repayment, declining to let the defendants retain any funds for their expenses.

Facts

The plaintiffs, Gamerco SA, were Spanish concert promoters who entered into a contract with the defendants, the agency for the band Guns N’ Roses, to hold a concert at the Vicente Calderón Stadium in Madrid on 4th July 1992. In accordance with the contract, Gamerco paid an advance of US$412,500 to the defendants. Shortly before the concert date, Spanish authorities revoked the permit for the stadium due to safety concerns, making it impossible for the concert to go ahead. The contract was consequently cancelled. Gamerco had incurred expenses totalling approximately $450,000 in preparation for the concert, while the defendants claimed to have incurred expenses of around $50,000.

Issues

The primary legal issues before the court were:

1. Whether the contract was frustrated by the revocation of the stadium permit.

2. If frustrated, how the court should exercise its discretion under section 1(2) of the Law Reform (Frustrated Contracts) Act 1943 regarding the advance sum of $412,500 paid by Gamerco.

3. Specifically, whether it was ‘just’ to allow the defendants to retain any part of the advance payment to offset the expenses they had incurred before the frustrating event.

Judgment

The judgment was delivered by Mr Justice Garland. He first held that the contract was indeed frustrated. The unavailability of the stadium was a fundamental change in circumstances that was not the fault of either party, rendering the performance of the contract impossible.

The core of the judgment focused on the application of the Law Reform (Frustrated Contracts) Act 1943. Section 1(2) of the Act provides that sums paid before a frustrating event are recoverable. However, a proviso grants the court discretion:

…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 to do so 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.

Mr Justice Garland considered the scope of this discretion. He rejected a rigid approach or a simple formula for loss-sharing. Instead, he emphasised that the court’s task was to achieve a just outcome based on all the facts of the case. He stated:

The question is what is just. It is not for the payee to prove that it is just for him to retain the expenses he has incurred… Justice may require a complete, a partial or no recoupment at all.

In exercising this broad discretion, the court considered the significant expenses incurred by both parties. Gamerco’s loss was approximately $450,000, in addition to the advance they had paid. The defendants’ claimed loss was substantially smaller at $50,000. Mr Justice Garland found that allowing the defendants to retain any part of the advance would be unjust, given the substantial losses already suffered by Gamerco. The court was not obliged to mitigate the payee’s loss at the expense of the payer.

In all the circumstances and in the exercise of my discretion I have come to the clear conclusion that there should be no deduction from the sum of $412,500 which the Plaintiffs are entitled to recover. The Plaintiffs have suffered a loss of some $450,000. The Defendants claim to have suffered a loss of some $50,000 although there may well be scepticism as to a substantial part of it. Justice requires that the Plaintiffs should recover the advance in full.

Therefore, the court ordered the full repayment of the $412,500 advance to Gamerco.

Implications

This case is a leading authority on the practical application of section 1(2) of the Law Reform (Frustrated Contracts) Act 1943. It establishes that the court’s discretion to allow a payee to retain funds to cover expenses is extremely broad and fact-sensitive. The decision clarifies that there is no presumption of loss-sharing, and the court can look at the financial positions and losses of both parties. Importantly, it demonstrates that where the party who paid the advance has incurred very substantial losses of their own, it is unlikely to be considered ‘just’ to permit the recipient to retain any part of the advance, even if they also incurred legitimate expenses. The case highlights the significant evidentiary burden and judicial hurdles a party faces in seeking to retain money paid under a frustrated contract.

Verdict: Judgment for the plaintiff (Gamerco SA). The court ordered the defendants to repay the advance of $412,500 in full.

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