## Introduction

When a contract is discharged by frustration, the common law rule that the **loss lies where it falls** can lead to severe hardship. The Law Reform (Frustrated Contracts) Act 1943 steps in to soften that outcome. It gives the courts power to order repayment of money, recognise non-cash benefits, and award a **just sum** that reflects fairness rather than rigid doctrine. This guide sets out the Act’s structure, explains how the courts apply it, and highlights leading cases.

## What You’ll Learn

- The purpose of the 1943 Act and why Parliament moved away from _Chandler v Webster_
- How sections 1(2) and 1(3) operate in practice
- The court’s discretion when deciding a “just sum”
- Key decisions: _Fibrosa_, _BP v Hunt_, and _Gamerco_
- Practical steps for advising clients on frustrated contracts

## Core Concepts

### Statutory Break with _Chandler v Webster_

Before 1943, a party who had paid money in advance could rarely recover it once frustration struck. Section 1 replaces that rule with a more balanced approach:

• Advance payments can be reclaimed.  
• The payee may retain an amount for expenses, subject to court approval.

### Section 1(2): Pre-Payments and Expenses

1. **Recovery of sums paid** – Money paid before the frustrating event is prima facie refundable.
2. **Discretion to allow set-off for expenses** – The court may permit the recipient to keep up to the amount of those expenses if it considers that fair.
3. **Future sums no longer due** – Any payment that was due after frustration stops being payable.

### Section 1(3): Non-Monetary Benefits

Where one party gains a benefit other than money—materials, services, or partial performance—the court can order payment of a **just sum** to the provider. Two stages guide the assessment:

1. **Identify the benefit** – Measured objectively, often by market value or saved expenditure.
2. **Fix a just sum** – Adjusted for risk allocation, partial performance, and any existing payments.

### Limits and Exclusions

- Certain contracts (e.g., insurance, some charter-parties) fall outside the Act: s 2(5).
- Parties may draft clauses to oust or modify the Act, but clear wording is needed: s 2(3).
- The doctrine of frustration itself remains narrow; the Act only applies once frustration is established.

## Key Examples or Case Studies

1. **Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32**  
   The House of Lords allowed recovery of a £1,000 advance for machinery undeliverable due to war. Although decided just before the Act, the case spurred reform and illustrates the move towards restitution.

2. **BP Prospecting Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783**  
   Oil concessions were expropriated by Libya. Robert Goff J valued BP’s benefit under s 1(3) by looking at the end result of its performance, not its costs. The court then calculated a just sum reflecting that value.

3. **Gamerco SA v ICM/Fair Warning (Agency) Ltd [1995] 1 WLR 1226**  
   A Guns N’ Roses concert was cancelled when the venue became unsafe. Under s 1(2), the promoter recovered its US\$412,500 advance. The court declined to allow the defendant to set off expenses because that would be unfair in the circumstances.

## Practical Applications

- Check whether the contract contains a clause that displaces the 1943 Act.
- Gather evidence of all expenses and benefits up to the moment of frustration—these figures drive the court’s discretion.
- Advise clients that partial performance may still attract payment if it yielded a tangible benefit.
- Remind parties that the Act does not apply where performance is merely harder or costlier; genuine frustration is still required.

## Summary Checklist

- Confirm frustration has occurred under strict common law tests
- Identify sums paid before the frustrating event
- Quantify expenses incurred in attempted performance
- Assess any non-monetary benefits conferred
- Apply sections 1(2) and 1(3) to propose a fair division
- Review the contract for clauses that limit or exclude the Act

## Quick Reference

| Topic                 | Section / Case     | Key Point                                     |
| --------------------- | ------------------ | --------------------------------------------- |
| Repayment of advances | s 1(2)             | Money paid is refundable, subject to expenses |
| Non-cash benefits     | s 1(3)             | Court may award a just sum                    |
| Court discretion      | s 1(2) & s 1(3)    | Focus on fairness, not strict restitution     |
| Exclusions            | s 2(5)             | Certain contracts remain outside the regime   |
| Leading authority     | _BP v Hunt_ (1979) | Two-stage test: value then just sum           |


Law Reform (Frustrated Contracts) Act 1943: Fair Allocation After Frustration