Author : Dr Dheeraj Bhar
Brijnandan Singh Bhar & Co
Email: Dheeraj@bsbharco.com
When conducting business internationally it is always vital to pay close attention to local laws and customs. This is particularly the case where your company may be transacting in a jurisdiction with cultural sensitivities which differ greatly from your home jurisdiction.
The recent example of pop star Ke$ha’s proposed music tour in Malaysia illustrates what can happen when local guidelines are not adhered to. To summarise the event, Ke$sha was due to perform her ‘Warrior Tour’ at the stadium Negara in Kuala Lumpur. The events organiser, Livescape, had submitted the necessary approval request to the applicable government agency (PUSPAL) some time in advance of the tour date and with assurances from the artist that the appropriate guidelines would be adhered to. The promoter then began selling tickets to the event but without confirmation from PUSPAL that the event was approved. PUSPAL eventually confirmed just a day before the scheduled performance date that the application was rejected and that the performance would not be allowed.
Contractual Analysis
With the benefit of hindsight it is easy to point out problems in the operating procedure that the promoter, Livescape, should have been more cautious about. In the first instance, the promoters took a financial risk by selling tickets before approval for the concert was actually given. However it can be difficult for any commercial party that is relying on the approval of a government agency to balance similar risks. The same might be true in the context of waiting for the approval of a merger by a competition agency or, for instance, an environmental agency. Commercial parties are occasionally required to operate with the uncertainty of pending approval for a transaction and this is where certain contractual provisions can aid commercial parties.
In a situation where any approval is denied by a government agency it is clear that the parties could suffer financial loss as a result. The promoter Livescape Asia, for example, claimed to have lost up to RM1.1M as a result of the denied approval, presumably through advertising and promotion expenditure. The artist may also have suffered financial loss in preparation and wasted expense in travel arrangements and other touring costs. The end consumers may have also suffered financial loss by contracting to buy tickets on the assumption that the concert had been approved.
It is helpful to examine the relationship between the contracting parties in this arrangement. Assuming there was a contractual agreement in place between the promoter and the artist this would mean the contract was in essence, dependent on the outcome of the agency’s approval which was the promoter’s obligation to obtain. In the relationship between the promoter and the end customers, this contract is also dependent on the approval of the agency, as the promoter cannot perform their contractual obligations without such approval. However the end customer is unlikely to incur any legal liability as a result of a lack of approval.
Given the necessity for governmental approval in order to perform the contract it becomes clear that the promoter in this scenario is bearing most of the legal risk should approval fail to materialise as well as a significant financial risk in comparison to the other parties. According to the promoter’s Facebook page the ticket sales were apparently refunded in addition to some travel expenses for those who had come from further afield to attend the concert.
Contractual Protection for Certain Parties
It is useful to consider how the law can assist parties taking on such risks. One legal concept which could assist parties in some circumstances is the doctrine of legal frustration. This will set aside the further obligations of parties in respect of unforeseen events occurring which render it impossible to fulfil their obligations under the contract. This is implemented by the Contracts Act 1950.
The doctrine of frustration however operates narrowly and does not apply to events within the contemplation of both parties. In the above example, the refusal of the performance application would not be likely to be considered a frustrating event because the approval had not yet been granted and this was therefore in the contemplation of one of the parties. However if, in a different scenario, the parties made the contract after the application had been granted and then after this the authorities cancelled the performance this would be more likely to be a frustrating event, pursuant to section 57(2) of the Contracts Act 1950, as the subject matter of the contract had subsequently become unlawful whereas it had been lawful previously.
Where one party knows that the performance of the contract may be unlawful, as may have occurred in this situation (because the approval for the concert had not been given) then such a party may be liable to pay any loss which the other party suffers as a result of non-performance, pursuant to section 57(3) of the Contracts Act. This provision, extending to any loss, carries a substantial financial risk and therefore if you are the party that is aware of local restrictions it is important to disclose these to the other party or ensure that you can bear such financial risks.
This type of relief from contractual obligations applies where events are not in the contemplation of the parties and additionally, frustration cannot be self-induced so that the impossibility of performance was caused by the actions of one party.
In terms of remedies, where one party has received the benefit of the contract e.g. any payment in advance, and the contract subsequently becomes voidable this benefit must be returned so as to prevent one party’s unjust enrichment.
The doctrine of legal frustration can therefore be of some assistance to contracting parties in cases where completely unexpected events affect the performance of a contract.
Other Solutions
While provisions in the legislation may come to the aid of parties in certain circumstances, where one party is bearing a significant proportion of legal and financial risk it is worth considering other options.
In the first instance there is always insurance to cover unforeseen events. However insurance providers may be able to provide coverage for occasions where parties have failed to gain approval from the authorities. A more realistic solution is re-apportioning such risks with the other parties involved e.g. the artist. As the artist in this scenario stands to benefit from the result of promotions featuring the artist it may be more sensible to share these costs in advance so that the risk of loss is also shared.
Additionally other contracting parties such as venue providers could also agree to share more of the risk where it is impossible to ascertain the outcome of pending approval. One way this could be done is to agree to limitations of liability for financial losses in certain scenarios. For example financial losses could be capped at a certain figure or only extend to certain types of expenditure.
These examples illustrate how contract law and careful drafting can go a long way to mitigate the legal and financial risks when parties are relying on outcomes beyond their control.
