Covid-19 cancellation refunds: judicial guidance on the retention of just expenses where contracts were frustrated by the pandemic

Summary

Hospitality venues will be comforted to learn of a recent decision permitting a venue represented by Michelmores to retain costs of preparing for a wedding cancelled at the start of lockdown. Counter to CMA’s guidance, the judge in Offley Place v Willis [2021] found that all categories of attributable costs qualified as just expenses under the Law Reform (Frustrated Contracts) Act 1943 (the “1943 Act“).

Background

The Claimant’s wedding was due to take place on 21 March 2020; on 20 March the first lockdown was announced and the venue cancelled the wedding. The Claimant held a small ceremony at the venue and a reception elsewhere. Having paid £8800, the Claimant demanded a refund (less a small amount for costs of the ceremony) and brought a small claim in the Oxford County Court. Offley sought to retain reasonable expenses.

First instance

Deputy District Judge found the contract was frustrated and, despite Offley putting a lot into the event, he found that the Claimant was entitled to a full refund (save £600 for the ceremony). “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“.  Permission to appeal was given on a single point, whether the judge had misdirected himself on the application of the 1943 Act.

Decision on appeal

HHJ Melissa Clarke overruled, saying: “the Deputy District Judge was wrong to direct himself that the appellant (Offley) could not offset its costs against what the respondent could recover, unless the respondent had some benefit.” She exercised her discretion under section 1(2) of the 1943 Act and considered what would be a ‘just’ sum to deduct from the refund for expenses incurred. HHJ Clarke accepted that all expenses were potentially recoverable and that due to the lengthy lockdown Offley was not able to mitigate its loss. She allowed a two third retention in respect of ‘attributable costs’ plus an additional £500 for ‘direct costs’ (food): £4500 in total (51% the contract value/64% of the costs incurred).

Impact of the decision

One of the first decisions to apply the provision of the 1943 Act to venue contracts impacted by Coronavirus, it shows:

• The 1943 Act was not specifically aimed at protecting consumers and should not be treated as such.
• Claimant obtaining a ‘benefit’ is not a prerequisite for retaining expenses.
• Section 1 seeks to achieve a just outcome for all parties in light of all the circumstances.
• Costs such as repair, cleaning, gardening, IT and wages are recoverable even if not incurred specifically in relation to an event; necessary and fundamental to hospitality contracts, they are recoverable because they are incurred “in part for the performance of the contract.”
• CMA’s guidance is wrong to state that such categories of cost are unrecoverable.
• County Court decisions are not binding but can be persuasive in other courts.
•  and illustrative of how other courts may rule.
• The facts of this case are unique and unlikely to be replicated in many circumstances.

Michelmores’ lawyers have been assisting the Wedding Venues Support Group (“WVSG”) and its members with devising new template terms and conditions and negotiating with the CMA and large insurance companies. We recommend that hospitality venues facing small claims make use of the WVSG member guidance in the first instance and engage local legal services as appropriate. Venues can contact WVSG here.