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Frustrated Contracts and Wedding Venues – article by Harry Dyson

Harry Dyson discusses what appears to be the first judgment at Circuit Judge level in relation to what monies can be retained or claimed by wedding venues when the contract has been frustrated by Covid-19 regulations. Harry has been exposed to this issue whilst working as a paralegal prior to commencing pupillage. He gained experience in dealing with both these claims and issues surrounding venues’ business interruption insurance.

In the recent appeal of Willis v Offley Place Hotel HHJ Clarke allowed the venue to retain two thirds of its expenses incurred. The judge’s methodology in reaching that figure is of great significance. It was held that such expenses should be calculated by considering the entirety of the costs of running the venue including overhead expenses divided by the number of weddings.

The latest available figures suggest that there were over 242,000 weddings in England and Wales each year prior to 2020. The idea that hosting and attending weddings would suddenly become unlawful was one which, understandably, never crossed the minds of couples or business owners. The word “unprecedented” has been overused in the last year or so, but this truly was just that. It is an emotional issue; for the couple the amount they have paid out in deposit alone (often 50% of the total price) is one of the largest sums that they will expend over the year. Meanwhile, wedding venues have seen their turnover fall to zero for over a year and have been asked to repay deposits. Such deposits are often paid over a year in advance creating huge problems in terms of cashflow as well as affordability.

Since 20th March 2020 those wedding contracts for the hire of venues have come under increasing scrutiny.

Various consumer organisations weighed in, notably the CMA, with what now appear to have been misconceived early statements about the rights of couples to receive immediate and complete refunds of all monies paid, including deposits. Inevitably some of these would end up in the small claims court and inevitably one would reach Circuit Judge level on appeal. That is what has happened with the case of Willis v Offley Place Hotel, the appeal from the original District Judge decision being heard before HHJ Clarke in the Oxford County Court on 7th April 2021.

The soon-to-be Mr and Mrs Willis had unfortunately booked and planned their wedding for 21st March 2020. Both the ceremony and the reception were due to take place at the Offley Place Hotel. On 20th March 2020, the day before the wedding, the Prime Minister made the first lockdown announcements such that the Hotel decided that whilst it could still offer to hold the wedding ceremony (which it did for the sum of £600), it could not lawfully hold the reception. Mr Willis persuaded another venue to hold such reception (the question of the propriety of that being irrelevant to these proceedings). It was not disputed that the Judge at the first hearing had correctly determined that the original contract had been frustrated. Mr Willis had paid the entirety of the sum under the original contract, £8,800, prior to the frustration and he brought a claim for the return of the entirety of that money.

The decision of the Court below

The Deputy District Judge held that the entirety of that money should be repaid . He stated:

“Mr Willis says he wants all the money back less a small amount for costs. The defendant says there should be some allowance for their expenses they put into getting this contract ready to be performed. They argued it as a share of the overheads which the whole business has. This is one way of looking at it. Mr Willis says it will be only the perishable items that would not be usable and that that does not even include the wine which did not have to be uncorked.”

“I am quite satisfied that, in reality, the defendant has put a lot of investment into this event, the planning, the time spent with the couple et cetera and getting it ready but that is not, in my view, and understanding of the law, a remedy of frustrated contract. It is not open to those who are unable to perform their obligations to offset their costs against what the claimant can recover unless the claimant had some benefit from those things. These commitments and money spent in terms of staff, premises, et cetera, are items which the claimant has seen no benefit of.”

The appeal

The appeal dealt with not only whether the Judge below had misdirected himself on law (a relatively straightforward point as he clearly had) but also, at the invitation of both parties, HHJ Clarke went on to consider what the appropriate award should be and therefore how section 1 of the Law Reform (Frustrated Contracts) 1943 should be interpreted. Despite its age, there have been surprisingly few authorities on this section, now catapulted into the limelight.

Section 1 deals with the adjustment of rights and liabilities to frustrated contracts:

Section 1 of the Law Reform (Frustrated Contracts) Act 1943

(1) Where a contract governed by English law has become impossible of performance or been otherwise frustrated, and the parties thereto have for that reason been discharged from the further performance of the contract, the following provisions of this section shall, subject to the provisions of section two of this Act, have effect in relation thereto.

(2) All sums paid or payable to any party in pursuance of the contract before the time when the parties were so discharged (in this Act referred to as “the time of discharge”) shall, in the case of sums so paid, be recoverable from him as money received by him for the use of the party by whom the sums were paid, and, in the case of sums so payable, cease to be so payable:

Provided that, 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.

(3) Where any party to the contract has, by reason of anything done by any other party thereto in, or for the purpose of, the performance of the contract, obtained a valuable benefit (other than a payment of money to which the last foregoing subsection applies) before the time of discharge, there shall be recoverable from him by the said other party such sum (if any), not exceeding the value of the said benefit to the party obtaining it, as the court considers just, having regard to all the circumstances of the case and, in particular,—

(a)the amount of any expenses incurred before the time of discharge by the benefited party in, or for the purpose of, the performance of the contract, including any sums paid or payable by him to any other party in pursuance of the contract and retained or recoverable by that party under the last foregoing subsection, and

(b)the effect, in relation to the said benefit, of the circumstances giving rise to the frustration of the contract.

It would appear that the Judge at first instance focussed on section 1(3) – dealing with the obtaining of a benefit by a party – to the exclusion of the other sections. He specifically found that as the Claimant had obtained no benefit from the contract, he should not have to pay anything, effectively ignoring section 1(2). HHJ Clarke had little difficulty in finding therefore that he had misdirected himself as a matter of law.

The question that HHJ Clarke had to consider was how she should calculate what expenses had been incurred by the Defendant  “in, or for the purpose of, the performance of the contract”.

Expenses incurred in, or for the purpose of, the performance of the contract

This question has been a matter of furious dispute between many parties to frustrated wedding contracts. The couples (and their representatives) have sought to restrict this to specific costs which would not have been incurred “but for” the specific contract for example the staff costs of holding a planning meeting, the food costs of a tasting menu selection dinner. The venues have sought to include a proportion of their overheads. Section 1(4) of the Act would appear to hold the answer to this point:

(4) In estimating, for the purposes of the foregoing provisions of this section, the amount of any expenses incurred by any party to the contract, the court may, without prejudice to the generality of the said provisions, include such sum as appears to be reasonable in respect of overhead expenses and in respect of any work or services performed personally by the said party.

In the Willis case the venue had produced accounts that showed that the annual running costs for its business (both a wedding and conference venue) were £986,000. 75% of its business was weddings and therefore the overheads attributable to weddings were £740,000. HHJ Clarke found that:

“in relation to this contract, those overheads have been incurred, in part, for the purposes of performance of this contract as well as all the other weddings which the appellant hosts”.

She went on to state (specifically noting that the Willis wedding was much smaller than the average size of wedding held at the venue):

“I think the attributable costs of overhead which the appellant seeks is logical and understandable, although I think perhaps be reduced a bit to about £6,000 to reflect the very small size of this wedding compared to other functions that they have there”.

HHJ Clarke’s ruling therefore appears clear (and in accordance with the provisions of section 1(4)) that in assessing the expenses incurred in or for the performance of the contract, the venue is entitled to rely on the annual running costs of the venue attributable to its wedding business divided by the number of weddings (possibly increased or decreased if the wedding itself was unusually large or small).

Having decided on attributable expenses, the next question that the Court had to decide was what proportion should be retained by the venue and what proportion should be repaid to the couple (in this case the couple had paid all the costs of the wedding; in the vast majority of cases, the couple will only have paid a deposit so the venue will have retained a far lesser percentage of the total cost of the wedding).

What is “just” in these circumstances (in the case of a couple without wedding insurance)

Section 1(2) of the Act states that the Court may allow the party to retain the whole or part of sums payable (or recover sums that the other party would have been liable for pursuant to the contract) “if it considers it just to do so having regard to all the circumstances of the case”  in respect of such expenses as have been ascertained in accordance with the matters set out above. HHJ Clarke found that the venue should be allowed to retain 2/3 of the overhead expenses (plus the entirety of the food costs given that these had been incurred and wasted as the event was the next day) explaining her reasoning thus:

“Although Mr Willis says that nothing that happened after 21 March should be taken into account, which is when he should have had his reception at this venue, I disagree with him. I think the circumstances of the case do include the fact that his wedding was planned on a date which was at the very beginning of the months-long pandemic lockdown during which the venue could not be used for anything at all. The business shut down overnight and through the peak season for weddings. That, and the fact of the inevitable financial hardship which was caused to this business and many others like them, is something I take into account because as Mr SpenceJones submits, the appellant could not mitigate the loss or amortise these overheads by holding more and bigger weddings later on that financial year. They had no business at all in the following months. I also take into account the very last-minute nature of the frustrating event and the fact that really all of the work had been done for the wedding, safe for the last minute preparation and the actual events of the day. All of the organisation, all of the buying and the vast bulk of the preparation had been completed. That goes both ways because although all of the work had been done by the appellant, equally, that meant that the stress and the hardship that was caused to Mr Willis and his wife must have been extraordinary especially as the circumstances at that time – in fact, as we have seen throughout the pandemic – are that the Prime Minister went on television and announced restrictions in general terms but it was not entirely clear what the detail of the restrictions would be and what the legislation would look like, until the legislation was published later. So these were very stressful periods for Mr Willis and his future wife. He was left in the very strange situation where the appellant refused to hold the reception believing it was not in accordance with the law as just announced on the television by the Prime Minister, but another venue did hold the reception believing it was in accordance with the law. The Deputy District Judge found that the uncertainty around the announcement was sufficient to frustrate the contract. Mr Willis and his future wife had all the extraordinary stress of finding and moving the wedding reception to that new reception venue, but being unable to remove the actual wedding ceremony because of licensing provisions and still having to hold the wedding ceremony at the appellant’s venue although it had refused to countenance holding the wedding reception. So I do not underestimate the stress and upset and confusion caused to Mr and Mrs Willis.

Mr Willis makes the point that he had to incur costs, firstly, by way of what seems to have been a collateral contract to hold the wedding ceremony at the appellant’s venue for which he was charged £600. No doubt there is a little bit in there which can be attributed to overheads. He also had to pay, I think, £1,900 to the new reception venue and no doubt also paid a contribution to the overheads of that venue within that price. He says all of the time that he and his wife spent add up as well. He adds another almost £3,000 for that. He lost sums which he had paid directly for eg musicians who were not willing to move to a different venue. So those really are the circumstances of the case and, of course, the fact that there were food costs, food which had been bought by the appellant and which could not be used. Mr Willis says that they could have put it in the freezer but that seems to me to be rather speculative. I have no evidence about whether that was possible.

So, taking all of that into account, and taking as the bottom-line figure for the attributable costs, maybe about £6,000, and adding the direct food costs on top, it seems to me that a significant proportion of that does need to be paid or should be retained by the appellant but not all of it for all of the reasons that I have given. This is really an exercise of my discretion. It seems to me that where I probably come out is about two thirds/one third to the appellant and the respondent. So, of those attributable costs, I think a fair amount is £4,000 to be retained by Offley Place plus the costs of the food. I am going to round that to £4,500. I know Mr Willis will be disappointed with that. He did concede during his submissions that he thought about £2,000 might be fair. That is because he is asking to be paid in relation to his time organising the wedding and I do not really think that is appropriate although I have taken the stress and inconvenience he and his wife have suffered into account in the broad brush account I have attempted to assess fairly”.

What is “just” in these circumstances (in the case of a couple with (compulsory) wedding insurance)

The Court had to effectively balance fairness between a wedding venue and a couple. Both parties were losing out from the situation in which they had unfortunately been placed. The Court could not compensate either for the entirety of their losses which had been incurred through no fault of their own.

We must turn now to the effect this judgment will have on potential claimants who did have weeding insurance. In this case the Court did not have to consider section 1(5) of the Act as Mr Willis unfortunately had no wedding insurance.

Section 1(5) states:

(5) In considering whether any sum ought to be recovered or retained under the foregoing provisions of this section by any party to the contract, the court shall not take into account any sums which have, by reason of the circumstances giving rise to the frustration of the contract, become payable to that party under any contract of insurance unless there was an obligation to insure imposed by an express term of the frustrated contract or by or under any enactment.

Many wedding venue contracts specifically oblige the couple to take out wedding insurance for perhaps obvious reasons given the size of the costs incurred in many weddings. If there was in place such a contract of insurance, you may be forgiven for thinking that as the costs would be covered by such insurance, these questions would not arise. However since the pandemic began the wedding insurance companies have largely refused to pay out, with some advancing the grounds that the insurance contract only covers the couples for “irrecoverable costs” and the loss of their deposits (for instance) is not irrecoverable as the contract was frustrated and therefore, on the insurance companies’ stated interpretation of section 1 (which has been stated to be exclude any overhead expenses), such deposits are repayable by the venue.

The judgment in Willis reveals that stance is fatally flawed and the insurance companies will have to now accept that an attributable proportion of the running costs of such venues will have to be taken into account.

However the matter does not end there. Given the wording of section 1(5) the court will take into account in deciding what is just between the parties to the contract (ie the couple and the venue – NOT the insurer) the fact that any amount that it decides it is just for the venue to retain will not be paid by the couple but by their insurer. So in the Willis case by way of an example if he had been insured, the Judge found that the venue had incurred £6,400 in expenses in performance of the contract, whilst Mr Willis had he been insured would not have lost anything due to the insurance payout. It is difficult to see how the Court could decide otherwise than that it was therefore just between the parties for the venue to retain sums equal to the entirety of the amount of the expenses.

Conclusion

Judges are undoubtedly faced with a difficult task when dealing with this type of claim. This can be said of any matter where neither party is at fault, but in cases involving disappointed couples and businesses which are fighting for survival it will inevitably be a tough challenge. HHJ Clarke has handed down a pragmatic judgment which does clearly strive to reach a fair balance and whilst only a County Court decision, hopefully this can start to provide some certainty to potential litigants.

Click here to view the Court transcript.

 

Harry Dyson is a first sixth pupil at Park Square Barristers. Prior to commencing pupillage, Harry was a Paralegal in the commercial litigation department at Ramsdens Solicitors. There he gained experience in a wide range of complex commercial litigation cases including; partnership disputes, intellectual property, construction and breach of contract. Harry will be accepting instructions from September 2021, if you would like to book him, please contact his clerks:

Business Development Clerk – Andy Reeves on 0113 213 5252

Talia Webster on 0113 202 8609

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