Law Reform (Frustrated Contracts) Act 1943

Summary

The Law Reform (Frustrated Contracts) Act 1943 reformed the consequences of the frustration of a contract — the automatic discharge of both parties where, without fault, performance becomes impossible or radically different from what was agreed. At common law (Chandler v Webster) money paid before the frustrating event was generally irrecoverable and money then due remained payable, producing arbitrary results that the House of Lords only partly corrected in the Fibrosa case. Under s.1(2) sums paid before frustration become recoverable and sums then due cease to be payable, though the court may allow a payee to set off expenses incurred. Under s.1(3), where one party has obtained a valuable non-money benefit before frustration, the court may award the other a just sum for it. The Act does not apply to certain contracts, including contracts of insurance and (in part) charterparties and contracts for the sale of specific goods that perish (s.2).

Key Points

• Money paid before the frustrating event is recoverable, and sums then due cease to be payable (s.1(2))
• The court may allow a payee to retain or recover expenses incurred before frustration (s.1(2) proviso)
• Where a party obtained a valuable non-money benefit before frustration, the other may recover a just sum (s.1(3))
• Reversed the harsh common-law rule in Chandler v Webster (building on Fibrosa v Fairbairn)
• Does not apply to certain contracts — insurance, some charterparties, and sale of specific goods that perish (s.2)

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