Chapter 14 Guidance on questions in the book

Frustration

Question

Hotdog contracts with Ivor to hire him his reception suite and to provide the catering for 200 guests for the wedding of Ivor's daughter Judy to Keith, which is to be held on the afternoon of 1st May. Ivor makes a pre-payment of £2000 and agrees to pay the balance of £5000 on the morning of the wedding. On 25th April, by which time Hotdog has made the wedding cake and procured supplies of champagne, but has not prepared any of the food for the reception, Keith is very seriously injured in a road accident and admitted to hospital, where he lies in a coma. Ivor telephones this news to Hotdog on the same day and tells him that the wedding is off. Hotdog replies: ‘That's your business: you are paying me to put on a reception and so far as I'm concerned the show goes on.’  Hotdog prepares the food and makes all the other arrangements for the reception, but no guests come. (a) Is Ivor entitled to the return of the £2,000, or any other sum? (b) Is Hotdog entitled to claim the £5,000, or any other sum?

Answer guidance

You are asked to look at this contract from the point of view of (a) Ivor and (b) Hotdog, but both need to know whether the contract has been frustrated (assuming the contract does not allocate the risk of this eventuality, expressly or impliedly, which in practice it would probably do). If it has been frustrated, you will need to apply the Law Reform (Frustrated Contracts) Act 1943 to sort out whether Ivor can seek repayment of the £2,000 already paid and whether Hotdog can recover anything for the work he has done. If on the other hand it hasn’t been frustrated, you will need to consider whether Hotdog can claim the £5,000 having fully performed his side of the bargain, even though Ivor had purported to cancel the contract - on these issues see chapter 17.

So the crucial issue is whether the contract has been frustrated in the first place. Notice that the injured groom is not one of the contracting parties, so there is no question of the injury in itself frustrating the contract. Notice too that it is a contract to provide a venue and food - so performing the contract has not become impossible or even more onerous or difficult, it is just that the underlying contractual assumption / context has changed. In this respect the fact pattern is very similar to Krell v Henry, but remember how exceptional, indeed unique, that case was. The usual result is the counter-example given in the case about the Epsom Derby (see the Canary Wharf case for example) and this case is much closer to the Epsom Derby fact pattern, because Hotdog is in business hiring out his hall and providing catering (unlike the claimant in Krell v Henry). So the contract probably isn’t frustrated by the cancellation of the wedding; however, for the purpose of answering the problem fully, you need to explore what would happen if it was.

This means systematically applying sections 1(2) and 1(3) of the Law Reform (Frustrated Contracts) Act. Under section 1(2) Ivor has a right to claim his £2,000 back, subject to the court’s discretion to allow Hotdog to keep some or all of it to cover expenses incurred before the frustrating event (note Hotdog cannot ‘recover his expenses’ under section 1(2), only ask the court to let him retain some or all of the pre-payment). More difficult is applying section 1(3) - has Ivor incurred a ‘valuable benefit’ by anything Hotdog has done? Probably not, so that rules out a ‘just sum’ for Ivor.