Central University Of South Bihar

SH - 7,Gaya- Panchanpur road, Village:- Karhara ,

Post :- Fatehpur , P.S. – Tekari ,District – Gaya
(Bihar) , Pin – 824236

A case study of “Doctrine of Frustration” in indian

contract act,1872
Submitted to :- Submitted by :-

Mrs. Meenakshi Kumari Ritesh Kumar

(asst. Professor) BA-LLB (1st sem )

CUSB Gaya (CUSB1813125078)

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 Acknowledgement
I am very glad to get this opportunity to prepare a report on the above topic.
I would like to express my special thanks of gratitude to my teacher Mrs.
Meenakshi Kumari , my teacher of contract law-1, who gave me the golden
opportunity to do this wonderful project on the topic “ Doctrine of Frustration
and Its Limitations ” in contract law which also helped me in doing a lot of
research and I came to know about so many new things. I am really thankful to
and fortunate enough to get constant encouragement, support and guidance
from all Teaching staffs of the School of Law and Governance who helped me in
successfully completing my project work. I would also like to thank my parents
and friends who helped me a lot in finalizing this project within the limited time
frame.

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 Contents
Topic. Page no.
Introduction ………………………………………………………………………… 4
Origin of the doctrine ………………………………………………………….. 4
Scope of the doctrine ………………………………………………………….. 5
Illegality ................................................................................... 5
Effects of express provision for frustrating event ……………….. 9
Effects of the doctrine ……………………………………………………….. 12
The law Reform (frustrated contracts) Act 1943UK ……………. 14
Conclusion …………………………………………………………………………. 17

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 Introduction
Frustration is an act outside the contract due to which the completion of a contract
becomes impossible. After the parties have concluded a contract, events beyond their
control may occur which frustrate the purpose of their agreement, or render it very difficult
or impossible, or as even illegal, to perform.

When the performance of the contract becomes impossible, the purpose which the parties
have in mind is frustrated. If the performance becomes impossible, because of a supervening
event, the promisor is excused from the performance of the contract. This is known as
doctrine of frustration under English law, and is covered by section 56 of the Indian Contract
Act. An example of this is where a hall, which has been booked for the performance of
a play, is destroyed by fire, after the contract has been concluded, but before the date
of performance of the play.

Origin of the Doctrine

The origin of the 'Doctrine of Frustration' as many other laws has been from the Roman laws.
It was part of the Roman contract law which extinguished obligations of innocent parties
where the 'thing is destroyed without the debtor's act or default', and the contract purpose
has "ceased to be attainable". It was applied in Roman times, for instance, to save, from
liability, a man who promised to deliver a slave by a certain day if the slave died before
delivery.
Centuries later in England in 1863, in the case of Taylor vs. Cardwell1, where A agreed with B
to give him the use of music hall and gardens for holding concerts on four different dates. B
agreed to pay a rent of £ 100 for each of the four days. Before the date of performance
arrived, the music hall Was destroyed by fire. B sued A for the breach of the contract, it was
held that when an opera house, which was rented for holding concerts, was destroyed by fire,
the contract was frustrated. This was because the very thing on which the contract depended
on ceased to exist. Thus it was held that for the doctrine of frustration it must be so that the
nature of contract is such that it would not operate if a thing ceased to exist.
Again in Paradine vs. Jane2 it was held that, 'In common rule of contract a man was bound to
perform the obligation, which he had undertaken, and could not claim to be excused by the
mere fact that performance had subsequently become impossible; because the party could
expressly provide in their agreement, the upon fulfillment of a condition or occurrence of an
event, either or both of them would be discharged of some or all of their obligations under
the contract. This was the concept of 'absolute contract'. After various instances of people
being excused for failure of performance of contract, the Doctrine was named in England in a
rent case of Krell vs. Henry3 in 1903, when an Englishman named Krell leased his apartment

1
1863 3 B & S. 826; 129 R.R. 573
2
91 LQR 247
3
Krell v Henry [1903] 2 KB 740

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in London to C.S Henry to be used for viewing a royal procession, which subsequently got
cancelled and Henry refused to pay krell the balance of the rent. Krell sued, but the English
court held against him on the ground that the purpose of the contract between them was
"frustrated". The court thought if Krell and Henry had foreseen the cancellation of the King's
procession, they would not have entered into the agreement. It found that the procession
was the foundation of the contract. The English law extended the principle beyond cases
where the subject matter of the contract was destroyed rendering performance impossible,
to cases where impossibility of performance follows the cessation of an "express condition or
state of things" essential to the contract.

Scope of the doctrine

Leases
It used to be argued that the doctrine of frustration could not apply to leases. This is because
a lease is not simply a contract enabling a tenant to make use of the land in question; it creates
a legal estate in the land. The argument ran that this legal estate survives despite supervening
events, which may prevent the use or enjoyment of the land
This is a rather technical view, which ignores the commercial reality of some leases especially
where the lease is short term and the tenant is concerned with the use to the land for a
specific purpose rather than in the creation of any legal estate. After some judicial uncertainty
on the subject, the leading case is now National carries Ltd v Panalpina (Northern) Ltd (1981).
The facts were as follows.
The appellant s had a 10-year lease of a warehouse form the respondents. After five and a
half years of the leas, the local authority closed the only access road to the warehouse for a
period of about 18 months. This closure of the road prevented the appellants form using the
warehouse for their business. As a result, the appellants stopped their payment of rent to the
respondents and claimed that the lease was frustrated.
The House of Lords decided that the closure of the access road was not a sufficiently serious
interruption to amount to a frustrating event. (This was in spite of the harm to the appellants
business caused by the closure) There was still a further three yeas of the lease remaining
when the road was opened again. The appellants were still liable for the rent under the lease.
But although the frustration claim in fact failed, the House of Lords held that the doctrine is
capable of applying to a lease. Their Lordships could see no reason why, in principle, the
doctrine should not apply to all types of contract.

Illegality
The doctrine of frustration will apply in circumstances where the performance of a contract
is contrary to some law passed after the contract is made.

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This is often described as a case of supervening illegality. In such circumstances the contract
is not impossible to perform, nor have the obligations under the contract (necessarily) been
radically altered. It is more a question of public policy in ensuring that the law is not broken.
For this reason it is not possible for the parties to exclude the operation of the doctrine, in
relation to certain types of supervening illegality (such as trading with the enemy) by express
agreement.
An obvious example of a contracts frustration die to supervening illegality is where its
performance would involve trading with an enemy country at a time of war.
Other examples of supervening illegality are where new licensing regulations are introduced
after the parties have contracted, or where restrictions on the import or export of certain
goods are subsequently introduced.

Impossibility: destruction of subject matter

Appleby v Myers (1867)where P contracted to erect machinery on Ds premises. When the
work was well under way, but before it was completed, an accidental fire destroyed Ds
premises and the machinery that had been erected so far. Ps claim to recover damages for
the work already done and the cost of materials failed as the destruction of Ds premises
discharged both parties form their obligations under the contract.
The court s view was that the contract did not include an absolute undertaking by D that his
premises would remain unaltered so as to permit P to complete the work contracted for. D
had not assumed the risk of the accidental destruction of the premise.
Cases can occur where the subject matter of the contract is badly damaged by accident, but
not totally destroyed. For example, in as far v Blundell [1896} 1 QB 123, a ship with a cargo of
dated sank and was refloated after a few days. On arrival, it was found that the cargo was
badly affected by the accident. It was held that the cargo owner was not liable to pay freight
as the goods, in a commercial sense, had perished. It did not matter that the goods could still
be put to some other commercial use, such as distillation into spirit; their nature had changed
to such a degree that they could no longer be classified as dates.

Impossibility: sale of goods.

Where a contract involves the sale of goods, we have to look at the particular rules relating
to this subject in addition to the common law principles. A contract for the sale of goods may
be frustrated for reasons that we have already considered such a supervening illegality. But
reference should also be made to the relevant provisions of the Sale of goods Act 1979.
Section 7 states that. Where there is an agreement to sell specific goods, and subsequently
the goods, without any fault on the part of the seller or buyer, perish before the risk passes
to the buyer, the agreements is avoided.

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So if S agrees to sell to B goods which are identified at the time the contacts is made and those
goods subsequently perish before the risk passes to B, the contract is frustrated (or avoided)

Impossibility: death or illness.

Most commercial contracts do not require performance by a particular person and no other.
Therefore, death or illness does not normally prevent performance of the contract. But where
a contract is for some personal service, to be rendered by a party to the contract, the death
or incapacity of the party will make performance impossible. Whincup v Hughes (1871) for
example, the plaintiffs son was apprenticed to a watchmaker for a six- year period at a
premium of $25, but the watchmaker died after just one year. The contract, which was for a
skilled and personal service, was obviously frustrated. In Robinson v Davison (1871) a contract
was held to be frustrated when a person who had been engaged to play the piano at a concert
on a particular day, was unable to do so because of illness. Notcutt v Universal Equipment Co
(London) Ltd (1986) a contract of employment was brought to an end, under the doctrine, as
a result of the employees chronic illness and his inability ever again to perform his contractual
obligations.

Impossibility: due to unavailability.

In some circumstances the subject matter of a contract, whilst still in existence, may simply
not be available for the purpose that was the contracted for.
In many cases the unavailability of the subject matter will only be temporary. If the contract
specifies performance within a particular time, or on a certain date, then the unavailability of
the subject matter at the crucial time will frustrate the contract. But it may obvious whether
there is a time limit on performance of the contract; In Jackson v Union Marine insurance Co
Ltd (1874) LR 10 CP 125 the facts were as follows:
Jacksons ship was chartered to go, in January 1872 directly form Liverpool to Newport and
there to load a cargo of iron rails to be shipped to San Francisco. Jackson took out insurance
on the chartered freight for the voyage. On the way to Newport, on 2 January the ship ran
aground in Caernarfon Bay. It took a month to free the ship and a future six months for repairs
to be carried out. Meanwhile, the chatterers had chartered another ship as a replacement.
Jackson claimed against the defendant insurance company for a total loss of the freight to be
earned under the contract, by perils at sea. To succeed with such a claim, it was essential to
decide whether the contract between Jackson and the chartered was frustrated, or whether
he could have successfully sued the chartered for not loading the goods, in other words, did
the chartered have the right to treat the contract with Jackson as discharged.

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It was held that a voyage undertaken after the ship had been repaired would have been a
very different adventure forms the one, which the parties had contracted for. A condition
could be implied that the ship would arrive in Newport in time for the particular voyage. Its
failure to do so within a reasonable time put an end to the contract. The long delay for repairs
meant that the contract was frustrated.
The court will sometimes have to decide whether a contract covering a lengthy period is
frustrated by supervening events, which cover part of the period. Typical examples of this
include the effects of a strike on a shipping contract or the requisition of a commercial ship
by the government at a time of war. Delay will frustrate a contract if it defeats the commercial
venture, but this can be difficult question to decide upon. In such instances the court must
look at both the length of the contract and the length of the interference, which causes the
unavailability of the subject matter.
It should be noted that the courts are supposed to judge the situation as at the date of the
frustrating event and not with the benefit of hindsight. This can lead to odd results. In Tamplin
Steamship Co Ltd v Anglo Mexican petroleum products Co (1916).
A tanker was chartered from December 1912 for a five-year period. In February 1915, the
vessel was requisitioned as a troop ship. The owners of the ship claimed that the contract was
frustrated by this supervening event.
The House of the Lords decided that the commercial object of the contract was not frustrated
as, at the time of the event in question, it appeared likely that the ship would still be available
to fulfill a substantial part of the contract after the war ended. As it turned out, the House of
Lords was wrong in its assumption, because the war did not end until 1918. But the case
illustrated the difficulty in judging the likely effect on a contract of some event, which causes
the temporary unavailability of the subject matter.

Impossibility not just financial/commercial hardship

It was stated by Lord Radcliffe in Davis Contractors Ltd v Fare ham UDC [1956] AC 696 at 729:
[I]t is not hardship or inconvenience or material loss itself which calls the principle of
frustration into play. There must be such a change in the significance of the obligation that
the thing undertaken would, if performed, be a different thing from that contracted for.
In the example of Tsakiroglou & Co ltd v Noblee Thorl GmbH (1962)The court refused to imply
a term that the goods were to be shipped by the customary and cheapest route.
Tsakiroglou shows the reluctance of the courts to extend the doctrine to cover cases of
impracticability or extreme financial hardship. But one case which offeres some, albeit,
slender, support for a wider application of the doctrine id Staffordshire Area Health Authority
v South Staffordshire Waterworks Co [1978] ALL ER 769. The facts were:

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In 1929, the plaintiff hospital authority entered into a contract with the defendant water
company which provided that all times hereafter the hospital was to receive 5,000 galloons
of water per day free, and all the additional water it needed at a rate of 7 d (later agreed as
2.9p) per 1,000 gallons. This supply of water was in exchange for the hospital having given up
its right to take water from its own nearby well. By 1975m the provision of water to the
hospital at the agreed rate was clearly uneconomic; the normal rate charged by the defendant
was 45p per 1,000 gallons. The company wrote to the hospital authority on 30 September
1975, giving six months notice of its intention to terminate the 1929 agreement. The company
would still supply 5,000 gallons per day without charge, but the excess would be provided at
the normal (economic) rates. The hospital refused to accept this notice and argued that the
1929 agreement was expressed as applying at all times hereafter.
The court of Appeal rejected the hospital authority argument, and ruled that the defendant
company’s notice was effective. The majority did not rely on the doctrine of frustration, which
explains why the case offers only slender authority for a wider interpretation of the doctrine
on the grounds of financial hardship. The court simply decided that the contract could be
brought to an end by giving reasonable notice. The judge did not think that the hospital should
be permitted to go on receiving its water at one-fifteen of the economic rate.

Effects of express provision for frustrating event

The doctrine of frustration has developed as a means of dealing with subsequent, unforeseen
events which render performance of a contract impossible, or illegal, or which fundamentally
change the nature of the contractual obligations undertaken by the parties. However, the
parties may make express provision dealings with certain supervening events and, in so doing,
effectively preclude the operation of the doctrine. The original theory behind the doctrine, as
explained in Taylor v Caldwell (1863) was that it was based on an effect to the presumed
intention o the parties. In other words, it could not operate if the parties had dealt with a
particular contingency by express provision.
One obvious exception, as we have seen, is that frustration on the ground that the contract
involves trading with an enemy country cannot be excluded by express provision. This is for
reasons of public policy and is not exceptionable. But, generally, the parties may make express
provision for other types of supervening events, such as strikes, closure of shipping rout,
illness, floods, fires and other disaster. Thus the parties can allocate the risk of such events as
they see fit. They may, for example, expressly provide for an extension to the period of
performance of the contractual obligation. They may further provide that should the
interference with the contract continue beyond a specified period, then either party is
entitled to terminate the contract. The parties can expressly decide that neither party is
entitled to compensation in the event of these contingencies. Such forward planning is
particularly useful for those involved in international trade, where the threat of disruption is
more likely.

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 Although the doctrine of frustration is limited to supervening events, which are not expressly
provided for in the contract, the court might interpret an express provision in such a way that
the doctrine may still operate. In Jackson v Union maritime Insurance Co. Ltd (1874) a
contract for the hire of a ship stated that the vessel was to proceed with all possible spread
(dangers and accidents of navigation excepted) from Liverpool to Newport, in order to load a
cargo of iron for San Francisco. The ship ran aground, not far from Liverpool, and was delayed
for eight months. It was held that notwithstanding the express exception of dangers and
accidents of navigation, the contract was frustrated. The words of exception appeared to
cover the contingency which in fact occurred, but the court found a way of limiting their
application because it clearly felt that a voyage undertaken after the repair to the ship would
have been a different adventure altogether. Accordingly, the express provisions were given a
restrictive interpretation by the court; it would excuse the owner of the ship and protect him
from an action for breach of contract, but it would not deprive the charterer of the right to
treat his contractual undertakings as discharge.

Frustration does not apply to foreseeable events

The doctrine of frustration does not generally apply to situations where the supervening
event was foreseen or foreseeable. If the parties foreseeable that a particular event might
occur, which may affect their performance of the contract, it will be assumed that they
contracted in accordance with the risk. For example, in Davis Contractors ltd v Far ham UDC
[1956] AC 696, the House of Lords rejected the company’s claim that the contract, for the
construction of 78 houses within a period of eight months for a fixed price, was frustrated by
shortages of labour and materials which increased the cost of the work. The basic obligations
under the agreement remained uncharged and financial hardship to one of the parties was
not sufficient reason for invoking the doctrine
The Davis Contractors decision can be defended on the basis that the risk of increased costs
due to various shortages, was clearly foreseen by the company. It must therefore be assumed
that it accepted that risk at the time of contracting.

Frustration cannot be self-induced

The doctrine of frustration applies only in circumstances where the supervening event is
beyond the control of the parties to the contract. It follows that where the alleged frustrating
event is caused by the deliberate act or decision of one of the parties, or by his negligence,
the doctrine will not apply. Whichever theory lies behind the doctrine- whether it is simply a
fair solution imposed by the courts- it is not possible to justify its application to subsequent
events, which are self, induced. An example of this rule is provided by Ocean Tramp Tankers
Corpn v V/O Sofracht, the Eugenia (1964) where the facts were:
The Eugenia was let out to the charterers to go from Genoa to the BlackSea to load cargo, and
thence to India to unload cargo. Having loaded, the ship proceeded on its route to India, which

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took it via Suez. In breach of contract, the chatterers allowed the ship to enter a war zone.
(The contract contained a war clause, which prohibited the chatterer from sailing the ship
into a dangerous zone without the owners permission) The ship entered the Suez Canal and
was trapped when the canal was closed. The chatterers tried to rely on the detention of the
ship as a frustrating event.
The Court of Appeal held that the charterers could not rely on the fact that the ship was
trapped in the canal, as this was their own fault, They were in breach of contract by allowing
the ship to enter a war zone and therefore, the alleged frustrating event was self-induced.
Similar issues were raised in the House of Lords in Paal Wilson & Co A/S v Partenreederei
Hannaj Blumenthal, The Hannah Blumenthal [1983) I ALL ER 34. The case concerned the sale
of a ship under a contract which provided that any dispute arising out of the sale was to be
settled by arbitration. Disputes arose about the vessel, and the buyers commenced
arbitration proceedings. As originally agreed, both parties appointed. In all, there was a period
of over seven years delay in the arbitration. The question arose whether the arbitration
agreement was frustrated as a result of the long delay which was fault of both parties. The
House of Lords held that in such circumstances, the fact that the parties were under a mutual
obligation to keep the arbitration process moving meant that neither party could rely on the
delay for the other as a ground for claiming frustration of the agreement to arbitrate.
However, if the fault of a party to a contract is merely of a minor nature, he may still be able
to rely on the doctrine. It will be a question of degree as to whether the particular fault or
default amounts to self-induced frustration. For example, would a contract for some personal
performance be frustrated if the person concerned became incapacitated by his own
carelessness? - such as a professional acrobat who sustains injury on a private skiing
expedition and as a result, is unable to perform his act? This type of problem was
acknowledged, without being resolved, in Joseph Constantine Steamship Line Ltd v Imperial
smelting Corpn Ltd.
There seems to be no reason, in principle why events brought about by a party’s own
negligence should not be regarded as self- induced and thus preclude the application of the
doctrine.
It should be noted that, where self-induced frustration is alleged, the onus of proof falls on
the party making the allegation. In Joseph Constantine, the owners of a steamship (The
kingwood) chartered the vessel to the respondents, to go to Australia and load a cargo there.
Before the cargo was loaded, an explosion occurred in the boiler of the ship, preventing the
contract form being carried out. The respondents sued the owners for damages and the
owners claimed that the explosion frustrated the contract. The respondents argued that the
owners of proof rested on the owners to show that the explosion was not their fault. The
House of Lords held that the contract was frustrated. The cause of the explosion was not
clear, but the respondents had failed to prove that the frustrating event was the owners fault.
The burden of proof was not on the owners to disprove negligence on their part.

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Effects of the doctrine
We must now consider the practical consequences that arise when the parties are
discharged under the doctrine. Unless the law provides for a fair distribution of the loss
resulting form the supervening event, it may not be satisfactory simply to hold that the
contract is frustrated. For example a party may have incurred considerable expenditure in
reliance upon the contract before the frustrating event occurred.
It is well settled that frustration automatically brings the contract to an end at the time of
the frustrating event.
This is in contrast to discharge by breach of contract where the innocent party can choose
whether to treat the contract as repudiated. Moreover, a contract, which is discharged by
frustration, is clearly different from one, which is void for mistake. A frustrated contract is
valid until the time of the supervening event but is automatically ended thereafter, whereas
a contract void on the grounds of mistake is a complete nullity form the beginning. A clear
statement about the legal effect of frustration on a contract can be found in Hirhi Mulji v
Cheong Yue Steamship Co Ltd [1926] AC, 497, where the facts were:
The respondent owners of a ship, The Singaporean, agreed by a charter party of November
1916 to hire their vessel to the appellants from 1 March 1917. The appellants agreed to use
the ship for 10 months from the date do delivery, Before 1 march 1917, the ship was
requisitioned by the government and not released until February 1919.when the ship was
requisitioned, the owners, thinking that se would soon be released, asked the appellants if
they were still willing to take up the charter (i.e. a little later). The Appellants said that they
would do so, but when the ship was finally released (later than expected) in February 1919,
they refused to accept it. The owners argued that the appellants could not rely on the doctrine
of frustration, despite the supervening event, as they had chosen to affirm the contract.
On appeal from the Supreme Court of Hong Kong, the Privy Council held that the contract was
frustrated in 1917. This meant that the obligations under the contract brought to an end
immediately and automatically at the time of the frustrating event. The application of the
doctrine did not rely upon the election of the parties. So eve where the parties continue to
treat the contract as subsisting for a period of time after the supervening event, the court
may declare it to be frustrated.
As a consequence of the rule that a contract is valid until the time of the frustrating event,
and is determined automatically thereafter, certain other rules were said to follow. The
common law position was encapsulated in the slight enigmatic expression that the loss lies
where it falls. For example, where money was paid under a contract, which was later
frustrated, it was not recoverable. This was because parties remained liable for contractual
obligations, which fell due before the supervening event. On the other hand, the parties
escaped form performing those obligations, which had not yet fallen due to the time of
frustration. The potential for unfairness decisions in Chandler v Webster [1904] 1 KB the facts
were;

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The plaintiff contracted to hire a room in Pall Mall from the defendant for the purpose of
watching the coronation procession on 26 June 1902. The price for the hire of the room was
$141 15s and it was payable immediately. The plaintiff paid $ 100, but before he paid the
balance the procession was cancelled due to the illness of the king. The plaintiff sought to
recover back the money he had paid.
The Court of Appeal held that his claim could not succeed. Moreover, he was liable for the
remaining $41 15s as this obligation had fallen due before the frustrating event occurred.
Despite receiving no actual benefit whatsoever, the plaintiff was still liable for the hire of the
room.
The harsh results of this rule as laid down by Chandler v Webster (1904) were not surprisingly,
subjected to considerable criticism, The law Revision Committee suggested that the rule
should be changed but, before any implementation to this report took place, Chandler v
Webster was overruled by Fibrosa Spolka Akcyjna b Fairbairn Lawson Combe Barbour Ltd [Ltd}
AC 32 (the Fribrosa case) The case involved a contract under which the respondents an English
company, were to manufacture certain machinery for the appellants, a Polish company, and
deliver it to Gdynia. The appellant were to pay $4,800 for the machinery, a third of which (ire
$ 1,600) was to be paid with the order. In fact only $1,000 was paid with the order.
Subsequently, Germany invaded Poland and occupied Gdynia. At this time, none of the
machinery had been delivered. For reasons, which we have considered earlier, the contract
was frustrated and the appellants sued for the return of the $1,000.
The Court of Appeal followed the rule in Chandler v Webster and held the money was
irrecoverable. But the House of Lords decided that there had been a total failure of
consideration and that the appellants were entitled to recover $ 1,000 for the respondents.
The decision in the Fibrosa case was an improvement on the harshness of Chandler v Webster,
but was not a complete solution to the problem of money paid under a contract, which was
then frustrated. This was freely acknowledged by their Lordships in the course of their
judgments (see [1943} AC 32 at 49-50, 54-5 and 71-2). Recovery of money paid depended on
there having been a total failure of consideration the performance of a part of the
consideration would thus prevent such a claim form succeeding.
Furthermore, the decision in the Fibrosa case made no allowance for the expenses, which
were incurred under the contract by the payee. In other words, it was rely a fair solution to
both parties it provided for the return of the prepayment, but it did not compensate the
recipient for the expenditure that it had incurred whilst partially carrying out the contract. In
the Fibrosa case itself, the $ 1,000 was recoverable, but the English company received nothing
for the considerable amount of work it had done on the machinery before the frustrating
event. The common law did not allow the appointment of the prepaid sum in this situation.
To deal with these obvious defects in the law, the law reforms (frustrated Contracts) Act 1943
was enacted soon after the fibrosa case.

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The law Reform (frustrated contracts) Act 1943UK
General

The law reforms (frustrated Contracts) Act 1943 was introduced in an attempt to provide for
a fair solution between the parties when their contract had been frustrated. It aimed at
preventing the unjust enrichment of either party to the contract at eh expense of the other.
It deals only with situations where contracts have become impossible of performance or been
otherwise frustrated and the parties have consequently been discharged from further
performance (s1 (10. It should be noted that the Act does not lay down the general principles
under which the doctrine will be invoked and this question is still dealt with under the
common law rules that we have considered earlier in this chapter. Also the parties may
themselves have made express provision for the frustrating event which has occurred, in
which case, under s 2(3) the court is to give effect to the parties intentions and the Act is
excluded by their contrary agreement.
LR (FC) 1943 does not apply to all types of contract. Section 2(5) states that the Act is not
applicable to the following.
a) Any charter party, except a time charter party or to any contract (other than a charter
party) for the carriage of goods by sea : or
b) Any contract of insurance
c) Any contract to which section 7 of the sale of goods Act (now 1979) applies, or to any
other contract for the sale, or for the sale and delivery, of specific goods, where the
contract is frustrated by reason of the fact that the goods have perished.

The main changes introduced by the Act.

All sums paid or payable to any party in pursuance of the contract before the time when the
parties were discharge (in this Act referred to as the time of discharge) shall, in the case of
sums so payable, cease to be so payable.
In other words this subsection enacts that advance payments made in pursuance of the
contract before the supervening event are recoverable.
It also provides that money which is payable under the contract before the frustrating event,
but not yet paid, ceases to be payable. Of course, there will be cases where the recipient of
the advance payment has incurred expenses before the contract was frustrated. It may well
be that the parties agreed on some advance payment for this very reason. If the whole sum
is recoverable, on discharge, then this reason, the new provisions are subject to the following
important proviso, which is appended as to s 1(2)

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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.
This award of expenses can be made only where an advance sum was either paid or payable
before the frustrating event.
A party has incurred expenses in the performance of the contract may be awarded his
expenses up to a limit of the sums paid or payable to him under the contract the frustrating
event. Such an award will be made where the court considers it just to do so having regard to
all the circumstances of the case.- in other words any award is at the discretion of the court.
The more recent case of Gamerco SA v ICM/Fair Warning (Agency) Ltd [1995) 1 WLR 1226
provides a rare judicial discussion of the application of LR (FC) A 1943, s 1(2). The facts were
that, in 1992, the plaintiff concert promoters (p) agreed to promote a pop groups (Ds) concert
at a football stadium in Madrid on a specific date, as part of that groups European tour.
Shortly before the date of the concert, but after the contract was made by the parties,
engineers discovered that the stadium was unsafe and its use was subsequently prohibited
by the local authorities. Thus, Ps permit to hold the concert was withdrawn and, as not other
suitable venue was available at this time , the concert was cancelled. P had paid $412,500 to
D in advance, and both parties had incurred some expenditure in preparing for the concert.
The action involves Ps claim to recover the advance payment under s 1(2) of the act, and D s
Counterclaim for breach of contract by P for failing to secure the requirement permit for the
performance.
The judge, Garland J, in the High court held that the contract was frustrated due to the
stadium being unsafe and its use for the contract being banned. Ds counterclaim was
unsuccessful, as P was not required to ensure that the permit, once obtained, would remain
in force. More significantly, it was decided to allow Ps claim in its entirety, with the judge
ordering the repayment of the whole sum paid in advance despite the fact that D had incurred
some expenditure in advance of the proposed performance, justice would be done by making
no deduction form the ordered repayment under the proviso. It seems that the precise
nature of Ds expenses was not very clear and the judge found it impossible to determine an
accurate amount.
Presumably it was felt that the expenses were heavier and more calculable than those of the
defendant pop group.
Another important innovation introduced by LR (FC) a 1943 is contained in s1 (3) which states
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 [section 1(2) applies) before the time of discharge, there
shall be recoverable form him by the said other party such sum (if any) not exceeding the

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value of the said benefit to the party obtaining it as the court considers just, having regard to
the circumstances of the case and in particular-
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, pursuance of the contract and
retained or recoverable by that party under [section 1 (2) and
The effect in relation to the said benefit of the circumstances giving rise to the frustration of
the contract.
20.52 An illustration of the potential usefulness of LR (FC) A 1943, s 1(3) is provided by the old
case of cutter v Powell (1975). The second mate of a ship, the Governor party, was promised
30 guineas for the completion of a voyage form Kingston (Jamaica) to Liverpool. The sailor
died after seven weeks of the voyage and his widow (the executrix) claimed a proportion of
his wages, on a quantum meruit basis, for the work he had done on the voyage before his
death. The court rejected the widow claim, the contract stipulated that the voyage had to be
completed. This sometimes referred to as the doctrine of strict performance.
It is possible that the outcome of Cutter v Powell would be different today under s 1(3) and
that the widow could recover from the defendant for the valuable benefit which he had
obtained form the sailors labour. But it is also possible that the Act would have been excluded
by the contrary agreement of the parties, as provided for by s 2(3) this might depend on the
construction of their agreement. Did they agree for example that there was to be not payment
whatsoever unless the entire voyage was completed by the sailor.
The first major case to be decided on the law reform (frustrated contracts) Act 1943 was BP
Exploration Co (Libya) Ltd v Hunt The facts were as follows.
Nelson Hunt had been granted an oil concession in Libya by the government of that country.
He entered into an agreement with a larger oil company, BP, to exploit the oil concession, as
he lacked the resources to go ahead on his own. BP were to do the exploratory work, which
they would finance, and in return they would get a half share of Hunts concession. Thy also
had to make certain farm- in payments to Hunt in cash and oil. As soon as the oil field become
productive, BP were to receive half of all the oil produced from it, together with
reimbursement oil (taken form Hunts share) to meet the cost of the company’s farm-in
payments and to cover Hunts share of eh development expenses. Thus BP were to bear the
principal risk of failure risk of failure in their combined venture. After much expenditure, a
large oil field was discovered, which became productive in 1967. But in 1971 BPs half share in
the concession was expropriated by the new Libya n government, following a revolution in
that country. The same fate befell Hunts half share in 1973. At the time of the frustrating
event, BP had received about one-third of the reimbursement oil to which they were entitled.
The company brought a claim under s 1(3) of the act for an award of a just sum.
The claim was allowed by Robert Goff J and he awarded BP a just sum under s 1(3) of the act.
The precise calculation of the amount is a complex matter, which will not be elaborate here.
Hunts appeals t both the court of Appeal and the House of the Lords were successful, the
main judgment on the scope of s 1(3) is that of the trial judge. (In the House of Lords, their

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lordships dealt with fairly minor, technical values of the oil concession as a result of BPs work.
It should be noted, however, that the value of this benefit was substantially reduced by the
circumstances giving rise to the frustration of the contract, namely the expropriation of the
parties interests in the oil field.

Conclusion
Frustration of a contract makes the contract void, and discharges the parties of the
contractual obligations. However, Section 65 of the Act states that when an agreement has
become void, the person who has received any advantage under such agreement is 'bound'
to restore it or to make compensation for it, from whom he received it. The issue arises
whether this section also applies to contracts rendered void by frustration. Frustration of a
contract occurs without the fault or control of either party, and therefore, a party should not
be made to compensate in such event. However, not providing adequate compensation may
also cause loss to the other party. Therefore, it is hoped that the Indian judiciary sheds some
light into such issues and provide a suitable remedy for cases of frustration of contracts.

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